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"The  'Bible'  of  the  interactive  gaming  industry." 
—GameWEEK  Magazine 


PRESS  START  TO  CONTINUE 


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The  Maturing  of  Mario 
by  David  Sheff 

■  Chapters  by  Andy  Edd" 


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Featuring  A  Photo  History  of  Nintendo 


DAVID  5HEFF 

GAME  OVER 


David  Sheff  s  articles  have  appeared  in  Playboy,  Rolling 
Stone,  The  Observer,  and  Foreign  Literature  (in  Russia), 
among  other  publications,  and  on  National  Public  Ra- 
dio's All  Things  Considered.  His  book  The  Playboy  Inter- 
views with  John  Lennon  and  Yoko  Ono  was  a  Literary 
Guild  Selection.  Sheff  lives  in  Northern  California  with 
his  wife,  Karen  Barbour,  and  son,  Nicolas. 


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GAME  OVER 

How  Nintendo 

Conquered  the  World 

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This  book  is  dedicated  to  Karen  Barbour,  who  insists  that 
Donatello,  Rafael,  Leonardo,  and  Michelangelo  are  painters, 
not  Teenage  Mutant  Ninja  Turtles,  and  to  my  son,  Nicholas, 
who  introduced  me  to  Nintendo,  but  now  prefers  reading. 


<A 


;  CyberActive 

MEDIA      GROUP,      INC. 


FIRST  GAMEPRESS  EDITION,  JANUARY  1999 

All  rights  reserved  including  the  right  of  reproduction  in  whole  or  in  part  by  CyberActive 

Publishing.  Published  in  the  United  States  by  GamePress,  a  division  of  CyberActive 

Publishing  In.,  Wilton,  CT  in  1999. 

Copyright  ©  7999 

ISBN  0-966  9617-0-6 


Portions  of  this  work  were  originally  published  in  Focus,  Men 's  Life  and  Rolling  Stone. 

Grateful  acknowledgment  is  made  to  the  San  Francisco  Examiner's  Image  magazine 

for  permission  to  reprint  an  excerpt  from  "Condemned  to  Be  Mario"  by  Scott  Rosenberg. 

Reprinted  by  permission  of  the  San  Francisco  Examiner's  Image  magazine. 

Originally  published:  1st  ed.  New  York:  Random  House,  cl993.  With  new  afterward. 
Includes  bibliographical  references  and  index. 

1.  Nintendo  Kabushiki  Kaisha.  2.  Electronic  games  industry. 
3.  Nintendo  video  games.  I.  Title 

CIP 

Book  design  by  Oksana  Kushnir 

Cover  design  by  Michael  Bouse 

Photography  courtesy  of  Nintendo  of  America 

Manufactured  in  the  United  States  of  America 
10  987654321 


Acclaim  for  DAVID  5HEFF'< 

GAME  OVER 


"An  intriguing  portrait  of  what  it  takes  to  succeed  in  today's  com- 
petitive computer  industry."  — Washington  Post  Book  World 

"A  fascinating  story  of  the  birth  and  growth  of  video  games  .  .  . 
Sheff  has  done  a  fine  job  explaining  the  high-tech  computer  world 
story  of  complicated  games  that  children  can  play — and  the  peo- 
ple who  are  bringing  this  new  world  to  us,  whether  we  want  it  or 
not."  — Kansas  City  Star 

"A  fascinating  look  at  the  Japanese  way  of  doing  business  ...  At 
times,  Game  Over  reaches  the  pitch  of  a  Cold  War  spy  novel." 

— L.A.  Daily  News 

"Writing  with  the  playful  pluck  of  Mario,  the  little  protagonist  of 
the  Super  Mario  Bros,  games,  Sheff  .  .  .  unfolds  an  engrossing 
tale  of  how  Kyoto-based  Nintendo,  once  a  small  playing-card  com- 
pany, transformed  the  U.S.  toy  and  computer  businesses." 

— People 

"Vivid  portraits  of  the  principal  players  and  shrewd  insights  into 
Japanese  and  American  corporate  culture  make  this  an  unusually 
enjoyable  business  history."  — Entertainment  Weekly 

"My  advice  is  simple.  Read  Sheff 's  book."  — Wichita  Eagle 

"David  Sheff  lays  bare  the  corporate  machine  beneath  the  high- 
technology  'fun'  of  Japan's  most  profitable  company.  .  .  .  Sheff 
painstakingly  documents  the  history  of  Nintendo  and  its  relentless 
rise  to  dominance  of  the  global  toy  industry."  — Maclean's 

"Game  Over  is  a  .  .  .  fascinating  look  at  the  Nintendo  phenome- 
non, filled  with  insiders'  insights  and  plausible  predictions  about 
the  future.  .  .  .  Sheff 's  book  is  an  absorbing  read,  even  for  non- 
Nintendo  junkies."  — Birmingham  News 


also    by    DAVID  5HEFF 

The  Playboy  Interviews  with  John  Lennon  and  Yoko  Ono 


ACKNOWLEDGMENTS 


Brief  portions  of  this  book  appeared  in  Rolling  Stone,  Playboy, 
Men's  Life,  and  San  Francisco  Focus.  Thanks  to  sources  named  and 
unnamed,  the  hundreds  of  interview  subjects.  Thanks  particularly 
to  the  following:  At  NCL,  Hiroshi  Yamauchi,  Hiroshi  Imanishi, 
Sigeru  Miyamoto,  Masayuki  Uemura,  Genyo  Takeda,  Gunpei 
Yokoi,  Reiko  Wakimoto,  and  Yasuhiro  Minagawa.  At  NOA,  Mi- 
noru  Arakawa,  Howard  Lincoln,  Peter  Main,  Al  Stone,  Phil  Rog- 
ers, Gail  Tilden,  Don  James,  John  Sakaley,  Toshiko  Watson,  Sandy 
Hatcher,  Sherrie  Mennie,  Tony  Harman,  Blaine  Phelps,  and  nu- 
merous others,  particularly  Bill  White.  Yoko  Arakawa  was  espe- 
cially gracious  and  forthcoming.  At  Sega,  Al  Nilsen.  At  Atari 
Games,  Hide  Nakajima,  Dennis  Wood,  Dan  Van  Elderen,  and 
Barry  Kane.  At  Electronic  Arts,  Trip  Hawkins,  Bing  Gordon,  Larry 
Probst,  Danny  Brooks,  and  particularly  Holly  Hartz,  who  sets  the 
standard  for  public  relations  in  this  industry. 


ACKNOWLEDGMENTS 


At  other  Nintendo  licensees,  Henk  Rogers,  Sheila  Boughten, 
Greg  Fischbach,  Bruce  Lowry,  Gilman  Louie,  Les  Crane,  Bob 
Lloyd,  Allyne  Mills,  Joe  Morici,  Kathleen  Watson,  Kathy  Prall, 
and  the  many  others.  At  Hill  &  Knowlton,  Jeff  Fox,  Karen  Peck, 
Don  Varyu,  and  especially  Lynn  Gray,  for  support  above  and  be- 
yond the  line  of  duty  when  she  initially  championed  this  book.  At 
Golin/Harris,  Alison  Holt  and  Susan  Iannetta,  and  at  Manning, 
Selvage  and  Lee,  Charlene  Gigliotti. 

Analysts,  including  David  Leibowitz  (American  Securities), 
Manny  Gerard  and  Sean  McGowan  (Gerard  Klauer  Mattison  & 
Co.),  Robert  F.  Kleiber  (Piper,  Jaffray  &  Hopwood),  and  Andrew 
J.  Kessler  (Morgan  Stanley),  periodically  contributed  their  exper- 
tise. 

I'd  also  like  to  thank  Robert  M.  Callagy,  Vladimir  Pokhilko, 
Vadim  Gerasimov,  Howard  Phillips,  Nolan  Bushnell,  Robert 
Stein,  Ron  Judy,  Suzuki  Eiichi,  Miyuki  Grace,  Jim  Mackonochie, 
Steve  Arnold,  Elliot  Luber,  Deborah  Brown,  Phil  Adam,  David 
Ellis,  Ben  Myron,  Mark  Smotrof,  Les  Inanchy  (Sony),  Greg  Zach- 
ary  of  The  Wall  Street  Journal,  Casey  Corr,  Tim  Healy  and  Tom 
Farrey  of  the  Seattle  Times,  Rich  Karlgaard  at  Forbes  ASAP,  Jaron 
Lanier  (J.P.L.),  Sharon  Fitzpatrick  (The  Learning  Co.),  Lynn  Hale 
and  Sue  Sesserman  (Lucasfilm  and  LucasArts),  Marty  Taucher 
(Microsoft),  Linda  Goetz,  and  Jenifer  Van  Horn.  In  Japan: 
Keisuke  Ono,  Yukio  Miyazaki,  Tsunekazu  Ishihara,  Yoshio  Ito, 
Koh  Shimizu  (Sony),  and  Nishi  Saimaru. 

Special  appreciation  goes  to  Alexey  Pajitnov,  the  creator  of 
"Tetris."  Also  to  many  sources  who  spoke  under  the  condition  of 
anonymity.  At  Random  House,  I  would  like  to  acknowledge  the 
contributions  of  Deborah  Aiges,  Carol  Schneider,  Lesley  Oelsner, 
Mitchell  Ivers,  Gail  Blackhall,  Lawrence  LaRose,  Becky  Simpson, 
Brian  Hudgins,  and  designer  Oksana  Kushnir,  Amy  Edelman  for 
pushing  deadlines,  and  Veronica  Windholz,  Ed  Cohen,  and  Sybil 
Pincus  for  tireless  copyediting. 

Special  thanks  to  my  editor  for  his  insights  and  his  devotion  to 
books,  to  Binky  Urban,  my  agent,  for  her  counsel  and  commit- 
ment, and  to  Barry  Golson  for  assigning  the  original  Nintendo 
article  from  which  this  book  grew.  My  thanks  as  well  to  Arthur 


ACKNOWLEDGMENTS 


Kretchmer  and  Steve  Randall,  my  editors  at  Playboy  magazine;  to 
Mike  Moritz  and  Fred  Bernstein  for  their  insights  and  advice. 
Thanks  also  to  Amy  Rennert,  who  assigned  the  article  on  Nolan 
Bushnell  for  San  Francisco  Focus;  to  Don  and  Nancy  Barbour,  as 
impeccable  a  research  department  as  anyone  could  ask  for,  and  to 
the  rest  of  my  family,  Joan,  Sumner,  Debbie,  Mark,  and  Jenny; 
Steve,  Susan,  and  Don,  and  my  extended  family  of  friends,  includ- 
ing Armistead,  Terry,  Peggy,  Susan,  Buddy,  Nick,  and  Doug. 


CONTENTS 


GAME  OVER 

1 .  A  New  Leader  of  the  Club  3 

2.  In  Heaven's  Hands  12 
3. 1,  Mario  37 

4.  Inside  the  Mother  Brain  57 

5.  Coming  to  America  80 

6.  For  a  Fistful  of  Quarters  107 

7.  Reversal  of  Fortune  1 3 1 

8.  Enter  the  Dragon  158 

9.  The  Grinch  Who  Stole  Christmas  1 87 

1 0.  Game  Masters  2 1 3 

11.  The  Big  Sleep  236 

12.  Game  Over  261 

13.  From  Russia  with  Love  292 

14.  The  "Tetris"  Song  315 

15.  Sonic  Boom  349 

16.  Borders  390 

Epilogue:  Forest  of  Illusions  422 

Afterward  to  the  Vintage  Edition  429 


GAME  OVER:  PRESS  START  TO  CONTINUE 

Photo  History  of  Nintendo  434 

Acknowledgments  1999  435 

Preface  1999  437 

1 .  Riding  the  Hardware  See-Saw  443 

2.  Ch-Ch-Ch-Changes  457 

Selected  Bibliography  475 

Index  479 


GAME  OVER 


Games  are  popular  art,  collective,  social  reactions  to  the  main 
drive  or  action  of  any  culture.  [They]  ...  are  extensions  of  social 
man  and  of  the  body  politic.  .  .  . 

As  extensions  of  the  popular  response  to  the  workaday  stress, 
games  become  faithful  models  of  a  culture.  They  incorporate  both 
the  action  and  the  reaction  of  whole  populations  in  a  single  dynamic 
image.  .  .  .  The  games  of  a  people  reveal  a  great  deal  about  them. 


— Marshall  McLuhan 
Understanding  Media: 
The  Extensions  of  Man 


\ 


A  NEW  LEADER  \^ 

OF  THE  CLUB  ^ 


Most  people  think  video  games  are  kids'  stuff,  and  it  is  true  that  in 
"Super  Mario  Bros.  3,"  mushrooms  give  super  strength,  enemies 
have  names  such  as  Morton  Koopa,  Jr.,  and  a  pudgy,  suspendered 
hero  jumps  on  the  heads  of  Little  Goombas.  Yet  behind  "Super 
Mario  Bros.  3,"  a  video  game  played  on  the  Nintendo  Entertain- 
ment System  (NES),  is  a  business  that  is  very  grown-up  indeed.  In 
America  alone,  revenues  for  that  one  game  have  topped  $500 
million;  in  the  field  of  entertainment,  only  the  movie  ET  has 
grossed  more. 

In  the  video-game  market,  where  shooting  and  mass  destruction 
were  the  norm,  the  first  "Super  Mario  Bros."  game  created  a 
revolution  in  1985  by  introducing  elements  not  often  associated 
with  computer  terminals  and  controllers:  wit  and  humor.  Mario, 
the  main  character,  made  an  unlikely  hero— a  plumber  who  can 
wisely  choose  to  avoid  enemies  as  well  as  to  confront  them.  In  this 
whimsical  world,  bright  green  and  red  mushrooms  make  Mario 


GAME    OVER 


grow  taller  and  more  powerful.  There  are  bomb-hurling  mice, 
waltzing  cacti,  and  turtles  who  can  use  their  shells  as  missiles. 
Surprises  that  give  players  more  time  and  extra  lives  lurk  in  the 
most  unlikely  places.  Children,  who  loved  the  characters  and  be- 
came ensnared  in  the  maze  of  the  game,  which  was  replete  with 
Pavlovian  rewards  and  punishments  and  carefully  programmed  in- 
creases in  challenge,  were  captivated. 

When  "Super  Mario  Bros.  2"  was  released,  the  beloved  charac- 
ters from  the  original  game  trekked  through  new  cartoon  scenery. 
This  time  they  confronted  foes  not  with  cannon  or  lasers  but  with 
turnips,  carrots,  and  pumpkins.  Thus  equipped,  players  headed 
into  uncharted  waters,  where  perseverance,  wit,  luck,  and  intermi- 
nable hours  of  practice  counted  for  everything.  "Super  Mario  2," 
like  its  predecessor,  was  a  great  equalizer.  The  game  gave  kids  the 
sort  of  power  they  couldn't  get  anywhere  else.  It  was  safe  for  them 
to  make  mistakes  while  playing,  because  there  was  always  another 
chance.  The  things  that  ordinarily  made  kids  popular  at  school 
were  not  important  when  they  were  playing.  Also,  they  had  found 
an  arena  in  which  they  could  beat  the  pants  off  their  parents,  not  to 
mention  confound  them  with  an  incomprehensible  vernacular 
('Tm  in  the  second  world  of  the  Sub-Con,  but  I  can't  get  past  the 
miniboss"). 

Months  before  it  appeared  on  the  market,  there  were  rumors 
about  the  next  "Super  Mario  Bros."  sequel,  but  no  one  saw  it  until, 
in  the  winter  of  1989,  a  movie  hit  the  nation's  theaters.  The  Wizard 
was  less  a  piece  of  art  than  a  one-hundred-minute  advertisement 
for  Nintendo  that  millions  of  families  paid  to  see  (it  grossed  $14 
million).  The  excitement  in  movie  theaters  was  palpable  when  kids 
realized  they  were  glimpsing  the  latest  Mario  game,  complete  with 
new  bells  and  whistles:  Mario  could  don  a  raccoon  disguise  and — 
best — could  fly. 

Kids  spread  the  word  on  playgrounds  and  in  schools.  Legions  of 
parents  were  strong-armed  by  eight-year-olds.  The  pressure  was 
enormous  to  be  among  the  first  to  own  "Super  Mario  Bros.  3." 

Some  parents  remained  oblivious  and  others  refused  to  bend  to 
the  pressure,  but  many  millions  succumbed.  "Super  Mario  Bros.  3" 
would  sell  more  copies  than  any  video  game  in  history — 7  million 
in  the  United  States  and  4  million  in  Japan.  By  record-industry 


A    NEW   LEADER    OF    THE    CLUB 


standards,  "SMB3"  went  platinum  eleven  times.  Michael  Jackson 
is  one  of  the  few  artists  to  have  accomplished  that  feat. 

The  money  earned  from  its  video  games  and  the  NES  system 
that  played  them  transformed  Nintendo  into  one  of  the  world's 
most  profitable  companies.  By  1991  Nintendo  had  supplanted 
Toyota  as  Japan's  most  successful  company,  based  on  the  indices 
of  growth  potential,  profitability,  penetration  of  foreign  and  do- 
mestic markets,  and  stock  performance.  Nintendo  made  more  for 
its  shareholders  and  paid  higher  dividends  between  1988  and  1992 
than  almost  any  other  company  traded  on  the  Tokyo  Stock  Ex- 
change. 

Nintendo's  profits  per  employee  were  consistently  greater  than 
those  of  any  other  Japanese  company  (excluding  finance,  stock, 
and  insurance  companies).  Fujitsu,  with  profits  similar  to  Nin- 
tendo's, had  50,000  employees.  Nintendo  had  850.  Nintendo,  in 

1991,  earned  about  $1.5  million  per  employee.  Internationally, 
Nintendo  employed  some  5,000  people.  That  year  Sony,  with 
50,000  employees,  earned  $400  million  less  than  Nintendo.  By 

1992,  the  company  was  consistently  earning  pre-tax  profits  of  more 
than  a  billion  dollars  a  year. 

The  multitentacled  video-game  business  swelled  to  consume 
larger  and  larger  segments  of  the  entertainment  and  consumer- 
electronics  industries  as  well  as  the  toy  industry. 

In  the  entertainment  business,  Nintendo  had  become  a  force 
that  could  not  be  ignored.  In  early  1992,  the  company  profited 
more  than  all  the  American  movie  studios  combined  and  the  three 
television  networks  combined. 

The  consumer-electronics  industry  watched  as  the  Nintendo  En- 
tertainment System,  in  just  five  short  years,  was  brought  into  more 
than  a  third  of  the  households  in  the  United  States  and  Japan. 
Although  twice  as  many  homes  had  VCRs,  the  movie-playing  ma- 
chines were  made  by  various  companies,  while  one  company  alone 
made  all  the  Nintendo  machines.  Moreover,  the  VCR  companies 
sold  just  the  machines,  not  the  videotapes  that  played  on  them. 
Nintendo,  on  the  other  hand,  was  making  hefty  profits  from  an 
ever-expanding  list  of  games  in  addition  to  the  machines  to  play 
them  on.  Consumer-electronics  giants  like  Sony  and  Matsushita 
Electric  Industrial  finally  woke  up  to  the  fact  that  by  the  turn  of  the 


GAME    OVER 


century,  consumer-hardware  companies  would  be  archaic  if  they 
had  no  involvement  in  software.  In  a  game  of  catch-up,  Sony 
bought  Columbia  Pictures  and  Matsushita  purchased  MCA,  the 
American  movie-and-entertainment  giant — attempts  to  wrest 
some  participation  in  the  entertainment  software  market. 

Nintendo  had  completely  blindsided  the  American  computer 
industry,  too.  The  founders  of  the  personal-computer  revolution 
had  predicted  in  the  early  eighties  that  computers  would  soon  be 
commonplace  in  most  homes,  like  toasters.  Yet  a  decade  after  the 
personal  computer  was  launched,  only  24  million  American  homes 
had  them— almost  10  million  fewer  than  had  Nintendo  systems. 
Worldwide,  there  were  about  an  equal  number  of  Nintendo  sys- 
tems and  PCs,  some  50  to  60  million.  As  with  VCRs,  the  PCs  were 
manufactured  by  dozens  of  companies;  less  than  10  percent  were 
made  by  the  number-one  PC  company,  IBM.  With  the  exception 
of  a  growing  number  of  illegal  pirate  versions  coming  out  of  Hong 
Kong  and  Taiwan,  just  one  company  manufactured  and  sold  all  the 
Nintendo  systems.  The  huge  Japanese  computer  company  NEC 
and  a  video-arcade-game  company,  Sega,  tried  to  compete  with 
Nintendo,  but  in  spite  of  investments  in  the  hundreds  of  millions 
of  dollars,  they  shared  less  than  10  to  15  percent  of  the  market 
through  1991.  Companies  such  as  Apple  and  IBM  looked  over 
their  shoulders  and  saw  Nintendo  on  their  heels.  When  Apple 
Computer  president  Michael  Spindler  was  asked  in  March  1991 
which  computer  company  Apple  feared  most  in  the  1990s,  he  an- 
swered, "Nintendo." 

The  computer  industry  understood  why  Nintendo  had  a  jump 
on  them:  Nintendo  had  predicated  its  entire  strategy  on  the  con- 
trol of  both  hardware  and  software.  In  1991,  Apple  and  IBM  an- 
nounced an  alliance  to  take  on  Microsoft,  the  software  giant.  In 
1992,  IBM  also  announced  an  alliance  with  Time  Warner.  Like  the 
consumer-electronics  companies,  the  computer-hardware  giants 
realized  that  to  remain  competitive,  they  needed  access  to  and 
control  of  software.  The  software  edge  would  become  particularly 
important  in  the  looming  battle  for  shares  in  the  next  technologi- 
cal revolution— multimedia  and  networking.  That  industry,  which 
combines  computer  power  with  home-entertainment  systems,  in- 
tegrating television,  video  recorders,  CD  sound  systems,  and  the 


A    NEW    LEADER    OF    THE    CLUB  7 

telephone,  was  judged  by  the  Los  Angeles  Times  to  be  worth  a 
mind-boggling  $3.5  trillion  annually  by  the  next  century.  The  ques- 
tion was  which  company  would  become  the  Maytag  of  home  com- 
puters in  the  potentially  mammoth  industry. 

Did  Nintendo  have  the  foresight  and  wherewithal — and  sheer 
temerity — to  be  that  ambitious?  Evidence  that  it  did  was  hidden  in 
the  belly  of  the  NES  unit. 

On  the  bottom  of  the  innocuous,  gray  game-playing  machine 
was  a  panel.  When  it  was  removed,  a  computer  cable  connector 
was  revealed.  A  two-way  doorway  to  the  main  processor,  this  port 
allowed  the  Nintendo  system  to  work  as  a  terminal  that  could  be 
connected  to  a  modem,  a  keyboard,  or  auxiliary  storage  devices. 
The  Nintendo  system  was  rolled  into  living  rooms  by  children  who 
welcomed  (and  worshiped)  it  as  a  game,  while  inside  it  lurked  the 
potential  to  be  transformed  into  the  integral  component  of  the 
largest  electronic  network  in  the  country.  With  a  phone  line 
plugged  into  it,  the  Nintendo  system  could  be  used  to  shop,  call  up 
movie  reviews,  buy  pork  bellies,  do  research,  make  airline  reserva- 
tions, and  order  a  pizza. 

The  machine's  greater  possibilities  were  first  tapped  in  Japan 
when  Nintendo  announced  the  Family  Computer  Communica- 
tions Network  System.  A  similar  network  planned  for  the  United 
States  had  the  potential  to  dwarf  the  Prodigy  network  (a  joint 
venture  of  IBM  and  Sears  Roebuck),  the  most-used  network  in 
the  country,  which  had  only  1.3  million  subscribers  by  January 
1992. 

Nintendo's  success  had  an  enormous  impact  on  numerous  in- 
dustries worldwide.  Besides  the  competing  hardware  companies, 
more  than  a  hundred  companies  that  made  video  games  rode  the 
Nintendo  wave.  In  1992  they  had  worldwide  sales  of  170  million 
cartridges,  at  an  average  cost  of  $40  each — almost  $7  billion 
worth. 

Once  it  became  clear  that  the  huge  video-game  market  showed 
no  signs  of  disappearing,  all  kinds  of  companies  began  lining  up  to 
become  licensed  producers  of  Nintendo-compatible  games.  Com- 
panies such  as  Electronic  Arts  and  Software  Toolworks,  which 
made  only  games  on  floppy  disks  for  computers,  had  tried  to  hold 


GAME    OVER 


out,  but  Nintendo  became  too  big  to  ignore.  They  signed  up,  as 
did  some  entertainment  companies,  including  Lucasfilm  and  Dis- 
ney (through  another  company  called  Capcom).  Companies  that 
were  already  cleaning  up  with  coin-operated  video  games  set  up  in 
arcades,  malls,  bowling  alleys,  and  pizza  parlors  entered  the  Nin- 
tendo business  too,  adapting  their  hit  arcade  titles  to  the  home 
system. 

Other  companies  affected  by  Nintendo's  success  were  outside 
the  video-game  industry.  Since  computer  chips  were  used  in  both 
the  Nintendo  hardware  and  software  (the  game  cartridges  con- 
tained special  chips),  Nintendo  used  more  of  certain  kinds  of 
semiconductors  than  any  other  company  in  Japan.  Nintendo  prod- 
ucts accounted  for  more  than  3  percent  of  total  Japanese  semicon- 
ductor production  in  1991. 

Quietly,  Nintendo  sailed  past  stalwart  American  corporations 
such  as  IBM,  Disney,  and  Apple  Computer,  not  only  in  profitabil- 
ity but  also  in  impact  on  American  culture.  In  the  last  part  of  the 
twentieth  century,  leaps  in  technology  ushered  in  a  new  era  in 
which  children  and  a  substantial  part  of  the  culture  as  a  whole 
would  be  more  influenced  by  interactive  electronic  media — in 
their  simplest  form,  video  games — than  by  television,  which  had 
defined  the  previous  generation.  The  signs  of  the  first  Nintendo 
generation  appeared  as  early  as  1989  and  1990.  A  study  by  Nielsen 
Media  Research,  the  company  that  monitors  television  viewing, 
showed  that  within  a  particular  age  group  more  kids  were  playing 
Nintendo  than  were  watching  the  major  children's  TV  network, 
Nickelodeon,  at  certain  times  on  certain  days  of  the  week.  Kids 
already  spent  more  time  in  electronic  environments  (TV,  radio, 
records)  than  they  did  in  school  or  talking  with  friends  or  parents. 
Some  of  them  were  spending  an  additional  two  hours  a  day  on 
Nintendo. 

Even  during  the  hours  when  kids  weren't  playing  video  games, 
they  were  being  showered  with  the  culture  of  Nintendo.  Television 
cartoon  shows  based  on  Nintendo  games  and  characters  were 
watched  by  more  kids  than  any  other  TV  programs.  Other  cartoon 
shows  (including  The  Simpsons,  Teenage  Mutant  Ninja  Turtles,  Chip 
'N  Dale  Rescue  Rangers,  and  Duck  Tales)  became  Nintendo  games. 
A  record  of  Nintendo  songs  and  a  feature  film  were  developed; 


A    NEW    LEADER    OF    THE    CLUB 


there  were  Nintendo  magazines,  hooks,  videos,  cereals,  note- 
books, drinking  mugs,  T-shirts,  board  games,  puzzles,  dolls,  wall- 
paper, and  bed  sheets.  Nintendo  infiltrated  every  conceivable 
market  until  the  question  was  not  whether  Nintendo's  invasion 
would  succeed  but  what  the  invaders  would  leave  in  their  wake. 

What,  asked  parents,  teachers,  and  sociologists,  were  the  long- 
term  effects  of  so  much  game  playing  on  kids'  self-images,  rela- 
tionships, and  social  skills?  How  did  Nintendo  affect  learning? 
Did  the  games  encourage  violence?  Did  they  empower  kids  or 
make  them  passive?  Did  the  impact  vary  among  different  age 
groups  and  genders? 

Some  saw  video  games  as  insidious  hypnotizers  and  mind  de- 
stroyers; others  viewed  them  as  training  tools  for  the  cybernetic 
world  of  the  future.  One  proponent  claimed  that  children  who 
excelled  at  one  game,  "Tetris,"  scored  higher  on  intelligence  tests. 

Besides  the  attempts  to  figure  out  the  effect  of  Nintendo's  inva- 
sion, there  was  also  a  great  deal  of  intellectualizing  about  why 
Nintendo  had  become  so  pervasive.  In  an  essay  in  the  San  Fran- 
cisco Examiner's  Image  magazine  in  September  1991,  "Con- 
demned to  Be  Mario:  The  Video-game  Plumber  as  Existential 
Hero,"  Scott  Rosenberg  wrote,  "Mario  is  a  character,  a  dumpy 
fellow  with  a  big  mustache;  but  he  is  also  a  stand-in,  your  iconic 
representation  in  the  video  universe.  ...  If  millions  of  children 
and  adults  have  melded  with  Mario  ...  it  may  not  be  simply  a 
matter  of  our  shortening  attention  spans,  our  craving  for  novelty 
or  our  susceptibility  to  expensive  ad  campaigns.  It  may  be  that  in 
Mario's  fate— stuck  in  a  world  not  of  his  own  choosing,  charged 
with  a  nearly  impossible  mission,  doomed  to  perish  sooner  or 
later,  yet  free  while  he  lives  to  grow,  learn,  slay  demons  and  stop 
to  smell  the  Fire  Flowers— people  are  catching  a  crude,  bright, 
hypnotic  reflection  of  their  own  lives."  Or  maybe  it  was  just  the  ad 
campaign. 

One  thing  was  inarguable,  however.  Nintendo  had  successfully 
entered  the  collective  consciousness.  "Q"  ratings,  which  indicate 
the  popularity  of  politicians,  movie  stars,  and  other  public  figures 
based  on  controlled  surveys,  showed  that  in  1990  the  Nintendo 
mascot,  Super  Mario,  was  more  recognized  by  American  children 
than  Mickey  Mouse.  How  significant  was  the  news?  Uncle  Walt 


10  GAME    OVER 

Disney  and  Mickey  Mouse  were  as  American  as — well,  nothing 
was  more  American  than  Walt  and  Mickey.  The  idea  that  Mario 
had  become  more  popular  than  Mickey  was  to  some  a  travesty 
that  signaled  the  next  phase  of  the  Japanese  invasion.  Japan  had 
already  captured  America's  wallets.  The  country's  minds — begin- 
ning with  children's  minds — were  next. 

Nintendo  had  become  Japan's  biggest  cultural  export.  Indeed, 
whereas  the  rest  of  the  world  devoured  Japanese  hardware — cars, 
Walkmans,  TVs — Japanese  "software,"  such  as  movies,  books,  art, 
and  music,  had  little  impact  outside  Japan.  The  exception  was 
video  games.  The  most  widely  known  Japanese  cultural  ambassa- 
dor was  Mario  and  with  him  came  a  new  set  of  values. 

Generations  of  children  had  been  imbued  with  Mickey's  mes- 
sage: We  play  fair  and  we  work  hard  and  we're  in  harmony.  .  .  . 
M-I-C  .  .  .  See  you  real  soon.  K-E-Y  .  .  .  Why?  Because  we  like 
you  .  .  .  Mario  imparted  other  values:  Kill  or  be  killed.  Time  is 
running  out.  You  are  on  your  own.  Donald  Katz,  in  a  February  1990 
Esquire  magazine  article,  observed  that  the  lesson  from  Mario  is 
"there's  always  somebody  bigger  and  more  powerful  than  you  are 
[and]  .  .  .  even  if  you  kill  the  bad  guys  and  save  the  girl — eventu- 
ally you  will  die." 

Oh  no!  Not  again!  At  the  end  of  summer  1991,  the  children  of 
America  heard  that  the  sequel  to  "Super  Mario  Bros.  3"  was  on  its 
way.  For  their  parents,  this  was  even  more  terrible  news  than  the 
last  time,  because  Nintendo  had  also  introduced  an  entire  new 
video-game  system  more  powerful  and  of  course  more  expensive 
than  the  original.  "Super  Mario  Bros.  4"  would  play  only  on  the 
new  Super  Nintendo  System. 

In  Japan,  kids  swamped  stores  to  get  their  Super  systems  as 
soon  as  it  was  released.  Most  of  them  went  home  empty-handed; 
the  game  sold  out  in  three  days.  Stores  illegally  parceled  them  out, 
sometimes  inflating  the  prices,  other  times  forcing  buyers  to  pur- 
chase additional  products  if  they  wanted  a  Super  Nintendo  Sys- 
tem. 

In  the  United  States,  in  the  midst  of  a  recession,  Nintendo  was 
less  confident  that  the  $200  Super  NES  would  sell.  By  1991,  some 
observers  of  the  video-game  industry,  noting  slower  sales  and 


A    NEW    LEADER    DF    THE    CLUB  1    1 

gloomier  projections,  suggested  (almost  gleefully)  that  kids 
seemed  to  be  cooling  off  to  Nintendo — that  this  might  be  the 
beginning  of  Goliath's  fall.  But  Nintendo  had  no  intention  of  go- 
ing gently.  To  push  the  new  system,  Nintendo  packaged  "Super 
Mario  Bros.  4,"  which  went  under  the  name  "Super  Mario 
World,"  together  with  the  Super  Nintendo  hardware,  like  the  prize 
in  a  box  of  Frosted  Flakes. 

Soon  the  playgrounds  were  abuzz  with  news  about  "Super  Ma- 
rio World."  Even  those  children  who  had  grown  bored  with  the 
original  Nintendo  system  were  excited,  encouraged  by  the  com- 
pany's $25  million  ad  campaign.  Parents,  who  had  watched  with 
relief  as  their  children's  fanaticism  for  Nintendo  seemed  to  be 
fading,  were  greeted  with  a  new  wave  of  fervor.  "Dad,"  the  chil- 
dren enthused,  "you  won't  believe  what  Mario  can  do  now  .  .  ." 
In  October  1991,  Nintendo  issued  a  press  release  titled  "Nintendo 
Loyalists  Put  Long-term  Entertainment  Value  Ahead  of  Short- 
term  Budget  Cuts,"  in  which  it  was  reported  that  the  Super  NES 
was  selling  at  a  rate  of  twelve  units  every  retail  minute,  or  one 
every  five  seconds.  In  spite  of  the  recession  and  all  the  gloom  and 
doom,  Nintendo  projected  that  1992  would  be  its  biggest  year  yet, 
with  sales  in  America  topping  $4.7  billion. 


\ 


IN  HEAVEN'5  \v 

HAND5  ^ 


In  the  eastern  part  of  Kyoto,  the  ancient  Japanese  capital  city,  near 
the  famous  Heian  shrine,  is  a  slumbering  side  street  now  called 
Higashi-ogi.  In  the  fifteenth  century,  it  was  a  pathway  of  hard- 
packed  dirt  that  led  to  the  Shogoin  Gotenso,  the  summer  castle  of 
the  emperor.  Across  from  the  castle  stood  the  home  of  the  em- 
peror's special  doctor. 

Centuries  later,  this  home  was  bought  by  Fusajiro  Yamauchi. 
The  Yamauchis  would  live  there  for  generations,  behind  an  im- 
mense gate  held  together  with  large  bolts  and  rusted  diamond- 
shaped  brackets.  The  huge  metal  hinges  that  hold  it  up  are 
serpents,  attached  to  beams  more  than  a  cubic  foot  thick.  The  gate, 
which  has  survived  for  five  hundred  years,  locks  shut  with  a  heavy 
cross-bar. 

In  the  year  Heisei  4  (1992),  the  gate  is  still  flanked  by  a  high 
fence  that  winds  around  the  perimeter  of  the  Yamauchi  property. 
The  fence  is  crowned  with  coils  of  razor  wire,  iron  spikes  with 


IN    HEAVEN'S    HANDS  13 

dagger  points,  and  deadly-sharp  bamboo  spears.  Their  purpose  is 
unambiguous. 

Inside  is  a  pathway  made  of  flat  stones.  Immediately  to  the  right 
is  a  two-story  guardhouse  the  size  of  a  child's  treehouse.  By  the 
pathway  across  from  the  guardhouse  are  flagstones  that  have  been 
set  in  the  earth  for  centuries,  all  but  buried  by  velvety  moss.  They 
lead  to  the  center  of  a  lush  and  tangled  garden  of  small  foot- 
bridges, a  patchwork  quilt  of  textures  and  greens:  feather-leafed 
bonsai,  sculpted,  dome-shaped  bushes,  and  gold-flecked  field 
grasses.  Amid  the  green  are  cabernet-red  maples  that  seem  aflame. 

Hidden  throughout  the  foliage  are  a  lantern,  a  bronze  crane, 
and  a  stone  shrine.  Overgrown  pathways  coil  through  the  garden, 
which  was  once  rigidly  tended,  corralled  in,  immaculate,  until  the 
current  generation  of  Yamauchis  let  it  grow  wilder. 

One  path  through  the  garden  leads  to  a  teahouse  with  sliding 
cedar-framed  paper  doors  and  floors  of  straw  tatami  mats.  Gener- 
ations of  Yamauchis  prepared  the  tea  ceremony  there.  Now  it  is  a 
storage  closet  filled  with  boxes  and  mattresses. 

Behind  the  garden  is  the  residence,  a  traditional  home  built  in 
the  style  of  a  Japanese  temple.  Homes  in  Japan  are  measured  not 
in  square  feet  or  meters  but  in  tatami  mats — the  book-thick,  rect- 
angular sections  of  sweet-smelling,  woven  straw.  In  past  genera- 
tions, wealth  was  measured  by  the  number  of  mats  (each  smaller 
than  a  twin  bed)  in  a  family's  home.  The  average  home  has  eight  or 
ten  tatamis;  the  Yamauchi  home  has  152. 

The  rooms  are  partitioned  by  shoji  screens,  and  the  walls  that 
look  onto  the  garden  are  floor-to-ceiling  glass,  outlined  by  dark, 
weathered  wood.  Newer  beige  stucco  clay  covers  some  walls,  but 
the  peaked  roof  is  finished  with  aged  gray-blue  tiles  in  the  pattern 
of  a  choppy  sea.  Around  the  periphery  the  tiles  have  circular  faces 
carved  with  the  symbol  of  balance  and  harmony,  the  intertwined 
teardrops,  yin  and  yang. 

Fusajiro  Yamauchi  was  an  artist  and  craftsman  during  the  Meiji 
period,  at  the  end  of  the  time  that  Western  civilization  describes  as 
the  nineteenth  century. 

Yamauchi,  reputed  to  be  fair,  good-humored,  and  skillful,  made 
karuta,  playing  cards.  The  Portuguese  and  Dutch  had  brought  card 
games  to  Japan  as  long  as  350  years  ago,  but  the  cards  Yamauchi 


1-4  GAME    OVER 

made  had  more  in  common  with  ancient  Japanese  games  that  were 
played  with  intricately  painted  seashells.  Hanafuda,  or  "flower 
cards,"  smaller  and  thicker  than  Western  cards,  came  to  replace 
seashells,  but  the  elaborate,  richly  colored  images  on  them  re- 
mained. 

Instead  of  number  and  picture  cards,  the  forty-eight  cards  in  a 
hanafuda  deck  were  painted  with  a  scheme  of  symbols:  for  exam- 
ple, a  deer,  the  wind,  a  chrysanthemum,  a  boar,  the  moon.  There 
were  twelve  suits,  one  for  each  month  of  the  year.  The  pine  and  the 
crane,  which  in  Japan  symbolize  long  life  and  good  fortune,  repre- 
sent January;  the  nightingale  and  plum-tree  blossoms,  February; 
cherry  blossoms,  March,  and  so  on  through  the  year  to  the  winter- 
blooming  paulownia,  with  its  fragrant  clusters  of  violet  flowers,  for 
December.  Individual  cards  within  the  suits  had  symbols — rain 
with  a  poet,  for  example,  a  highly  valued  card,  worth  twenty  points; 
or  wisteria,  more  common,  worth  one. 

The  most  popular  hanafuda  game,  matching  flowers,  appeared 
to  be  a  simple  game  of  matching  images  in  order  to  make  packs, 
but  it  could  be  as  complex  as  bridge,  and  it  was  taken  as  seriously. 

Yamauchi  founded  Nintendo  Koppai  in  Meiji  22  (1889),  to  pro- 
duce and  sell  the  handmade  cards.  The  kanji  characters  he  chose 
to  make  up  the  name  of  his  new  company — nin-ten-do — could  be 
understood  as  "Leave  luck  to  heaven,"  or  "Deep  in  the  mind  we 
have  to  do  whatever  we  have  to  do."  The  most  common  reading  of 
it  was  "Work  hard,  but  in  the  end  it  is  in  heaven's  hands." 

Yamauchi  made  the  paper  for  the  flower  cards  in  the  traditional 
way,  from  the  bark  of  mulberry,  or  mitsu-mata,  trees.  He  pounded 
the  bark  into  a  paste  and  added  clay  to  give  it  more  weight.  Thin 
layers  were  dried  and  pulled  and  shaped.  The  craftsman  regarded 
paper  as  a  living  creature  with  a  will  of  its  own.  Yamauchi  fought 
with  it  until,  at  the  end,  it  succumbed  to  his  will,  its  new  form. 

Several  layers  were  pressed  together  until  the  rigid  thickness  of 
a  hardback  book  cover  was  achieved.  Yamauchi  designed  a  wood- 
block printing  system  to  emboss  the  outline  of  the  individual  cards 
on  a  large  sheet  of  the  paper.  He  laid  a  series  of  stencils  over  the 
paper  and,  using  luminous  inks  made  from  flower  petals  and  ber- 
ries, filled  in  the  drawings.  Backgrounds  were  red.  Grass  was  black. 


IN    HEAVEN'S    HANDS         15 


The  full  moon  was  left  unpainted,  the  straw  color  of  the  paper.  The 
pigments  bled  slightly  together  when  they  met,  so  each  card 
seemed  hand-dyed. 

Nintendo's  hanafuda  cards,  called  Daitoryo  (or  President),  be- 
came the  most  popular  cards  in  the  Kyoto  region.  They  were  sold 
in  Nintendo's  shops  in  Kyoto  and  Osaka.  Nintendo  also  made 
cards  with  different  symbols  that  were  sold  in  other  regions. 
Kanto's,  for  instance,  had  swords,  mountains,  and  human  beings. 

So  long  as  hanafuda  was  solely  a  domestic  amusement,  Nin- 
tendo's business  remained  small  and  only  modestly  profitable,  but 
business  increased  when  the  flower  cards  began  to  be  used  for 
gambling.  In  the  absence  of  horse  or  dog  racing  or  sports  pools,  the 
yakuza,  Japan's  equivalent  of  the  Mafia,  operated  high-stakes 
games  of  hanafuda  in  casino-like  parlors.  Nintendo  profited  hand- 
somely, since  professional  players  would  begin  each  new  game  with 
a  fresh  deck,  discarding  the  old  one.  To  keep  up  with  the  demand, 
Fusajiro  Yamauchi  trained  apprentices  to  mass-produce  the  cards. 

He  expanded  his  business  again  in  1907,  when  Nintendo  became 
the  first  Japanese  company  to  manufacture  Western-style  playing 
cards,  which  were  becoming  popular  in  Japan.  Yamauchi,  who  had 
been  selling  his  cards  only  in  Nintendo's  shops,  now  needed 
greater  distribution.  He  negotiated  a  deal  with  Japan  Tobacco  and 
Salt  Public  Corporation,  the  tobacco  monopoly,  and  that  company 
began  selling  Nintendo  karuta  in  its  cigarette  shops  throughout  the 
country. 

It  was  a  profitable  arrangement.  By  the  time  Fusajiro  was  ready 
to  retire,  Nintendo  was  by  far  the  largest  Japanese  playing-card 
company. 

Fusajiro  Yamauchi  had  no  son.  If  Nintendo  was  to  remain  in  the 
family,  Japanese  tradition  required  that  his  daughter,  Tei,  marry  a 
man  who  could  take  over  for  him.  A  marriage  was  arranged  with  a 
stern,  hardworking  student  named  Sekiryo  Kaneda.  He  agreed  to 
take  the  Yamauchi  family  name,  as  was  custom  if  he  wanted  to 
enter  his  bride's  family's  business.  In  1929,  Sekiryo  Yamauchi  be- 
came Nintendo's  second  president. 

Although  Sekiryo  and  Tei's  home  life  was  not  easy  (she  stoically 
tolerated  her  husband's  philandering),  they  prospered.  Sekiryo's 


16  GAME    OVER 

outside  business  passion  was  real  estate,  and  the  Yamauchis  came 
to  own  a  sizable  portion  of  eastern  Kyoto  as  Sekiryo  worked  to 
transform  Nintendo. 

In  1933,  he  established  a  joint-venture  corporation  called 
Yamauchi-Nintendo  and  moved  from  the  original,  modest 
hanafuda  shop  in  Kyoto  to  a  ferroconcrete  building  he  had  con- 
structed next  door.  In  1947,  he  created  a  distribution  company 
called  Marufuku  to  sell  new  varieties  of  modern,  Western-style 
playing  cards — pinochle  and  poker  decks — with  fancy  backs.  He 
built  a  sales  force  that  called  on  small  and  large  shops  all  over 
Japan.  To  produce  the  cards  more  quickly  and  efficiently  (with 
paper  bought  from  suppliers)  he  developed  an  assembly  line  of 
workers.  Nintendo  became  an  efficiently  run  business  with  a  rigid, 
hierarchical  management  structure.  Industrious  managers,  pres- 
sured to  surpass  the  performance  of  their  colleagues,  were  notori- 
ously tough  on  subordinates. 

Sekiryo  and  Tei  were  the  second  generation  of  Yamauchis  to 
have  daughters  but  no  sons.  Kimi,  their  eldest,  married  Shikanojo 
Inaba,  from  a  respected  family  of  craftsmen.  Like  his  father-in-law 
before  him,  Inaba  adopted  his  wife's  surname  and  thereby  became 
the  heir  apparent  to  Nintendo.  It  was  assumed  that  Shikanojo 
Yamauchi  would  take  over  when  Sekiryo  retired. 

In  1927,  Shikanojo  and  Kimi  had  a  child,  Hiroshi,  the  first 
Yamauchi  male  to  be  born  in  three  generations.  Hiroshi  was  five 
when  Shikanojo  ran  away,  abandoning  his  wife  and  son.  The  young 
boy  was  told  that  his  father  was  worthless  and  deceitful.  Nothing 
else  was  ever  said  of  him. 

Disgraced,  Kimi  began  divorce  proceedings  and  moved  in  with 
her  sister,  leaving  Hiroshi  in  the  care  of  her  parents.  They  reared 
him  with  the  same  iron  fist  with  which  they  ran  Nintendo.  They 
attended  to  his  education,  his  grooming,  and  his  manners  with 
equal  severity.  But  Hiroshi  rebelled,  and  the  older  he  got,  the  more 
intractable  he  became. 

Arrogant  and  impudent,  Hiroshi  disregarded  his  grandparents 
as  he  grew  into  a  balefully  handsome  and  debonair  gentleman  who 
carried  his  small  body  with  conceited  sturdiness,  his  head  jutting 
forward.  He  wore  his  thick  hair  back  and  his  eyebrows  swept  down- 
ward around  his  dark  eyes.  Hiroshi  dressed  in  expensive,  well- 


IN    HEAVEN'S    HANDS 


tailored  clothes.  He  kept  his  fingernails  long,  manicured,  and  pol- 
ished. He  was  sullen  and  bitter,  yet  he  disguised  his  moods  with 
levity  and  a  dust-dry  wit.  His  temperament  was  the  legacy  of  an 
absent  father  and  his  grandparents'  scorn. 

Hiroshi  saw  his  mother  on  occasion,  but  Kimi,  who  never  remar- 
ried, had  become  more  like  an  aunt.  She  worked  at  Nintendo, 
where  she  ran  a  subsidiary  that  was  involved  in  sales. 

Hiroshi  Yamauchi  never  saw  his  father  again.  Shikanojo  had 
brought  shame  and  dishonor  to  the  family,  and  when  he  returned, 
aged  and  ailing,  desperate  to  see  his  only  son,  Hiroshi  refused  to 
speak  to  him. 

One  day  when  Hiroshi  was  in  his  late  twenties,  his  hair  already 
graying,  he  heard  from  a  half  sister  he  didn't  know  he  had:  their 
father  had  died  of  a  stroke.  She  said  Hiroshi  should  honor  his 
father's  memory  by  attending  the  funeral. 

Yamauchi  sat  alone  for  a  full  day  before  deciding  he  would  go. 

At  the  funeral,  Hiroshi  met  his  four  half  sisters,  his  father's 
second  wife,  and  an  aunt  he  had  never  known.  He  was  over- 
whelmed when  his  aunt  told  him  he  looked  exactly  like  his  father, 
and  he  wondered  what  else  he  had  inherited  from  Shikanojo.  He 
also  wondered  what  price  a  son  would  have  to  pay  for  refusing  to 
reconcile  and  forgive  his  father. 

Hiroshi  grieved  for  months  after  the  funeral.  He  cried  freely;  the 
death  changed  him,  and  a  part  of  him  never  seemed  to  heal. 
Throughout  the  rest  of  his  life,  he  made  regular  visits  to  Shika- 
nojo's  grave. 

Hiroshi  was  sent  to  a  preparatory  school  in  Kyoto  in  1940,  and 
Sekiryo  planned  on  sending  him  to  a  university  to  study  law  or 
engineering.  But  war  came,  and  all  lives  in  Japan  were  put  on  hold. 
During  the  war,  Hiroshi's  grandmother,  Tei,  emerged  as  the  leader 
of  the  Yamauchi  family.  The  rest  of  the  family  would  go  under- 
ground when  the  air-raid  sirens  wailed  through  Kyoto  nights,  but 
Tei  resolutely  went  about  her  business  as  if  nothing  was  out  of  the 
ordinary. 

Tei  would  not  consider  allowing  Hiroshi  to  enter  the  military. 
When  the  war  began,  he  was  too  young  to  fight,  and  by  the  time  he 
could  have  been  called  up,  the  tide  had  already  turned  and  the 
Yamauchis  knew  that  Japan  would  lose.  To  keep  him  safely  out  of 


GAME    OVER 


the  war,  Tei  made  Hiroshi  stay  in  school,  and  he  was  given  an 
assignment  in  a  military  factory. 

Rice  and  other  food  were  scarce;  most  people  in  the  area  sur- 
vived on  little  but  potatoes.  Yamauchi,  however,  carried  a  precious 
rice  lunch  to  work  each  day,  from  the  stockpile  in  Tei's  pantry. 
During  his  lunch  break,  Hiroshi  noticed  that  a  supervisor  was  hun- 
grily eyeing  his  rice.  Hiroshi  shared  it  with  the  man  and  was  re- 
warded, that  afternoon,  with  time  off.  Hiroshi  went  out  to  a  field 
and  took  a  nap.  After  that,  Yamauchi  brought  two  lunch  boxes  to 
work  each  day,  one  for  himself  and  one  for  the  supervisor,  and 
each  day  he  was  excused  from  work. 

When  the  war  ended  in  1945,  Yamauchi  enrolled  in  Waseda 
University  to  study  law.  He  also  entered  into  a  marriage  arranged 
by  his  grandfather.  His  bride  was  Michiko  Inaba  (no  relation  to 
Shikanojo),  a  descendant  of  a  very  high-ranking  samurai,  loyal  to 
the  daimyo  who  lorded  over  Shikoku  Island  during  the  early  Meiji 
period.  This  powerful  and  wealthy  samurai  had  moved  from  Shi- 
koku to  Kyoto,  where  he  married  and  took  the  Inaba  name.  He 
opened  a  small  business,  making  delicate  cloisonne  pieces — Inaba 
cloisonne  would  become  known  throughout  the  world. 

In  Japan,  when  a  marriage  was  formally  arranged,  the  couple's 
parents  would  meet  to  discuss  the  match.  However,  because 
Hiroshi's  grandparents  were  making  the  match,  the  couple's  first 
date  was  a  meeting  of  the  two  clans:  the  matchmaker  was  host  to 
Sekiryo  and  Tei  and  Kimi  Yamauchi  as  well  as  Michiko's  parents 
and  four  grandparents.  The  couple  was  married  soon  after  in  a 
traditional  ceremony. 

When  Hiroshi  was  twenty-one  his  grandfather  had  a  stroke. 
Sekiryo  asked  that  the  young  man  be  sent  in  to  see  him.  His  grand- 
father, propped  up  on  pillows  on  his  bed,  spoke  soberly  to  Hiroshi. 
As  the  first  Yamauchi  son  since  Fusajiro,  Hiroshi  would  assume 
the  position  that  was  supposed  to  have  been  his  father's.  He  would 
have  to  leave  school  and  immediately  come  to  work  at  Nintendo, 
as  president. 

Hiroshi,  responding  without  emotion,  said  he  would  take  over 
the  company,  but  he  insisted  on  several  conditions.  The  main  one 
was  that  he  must  be  the  only  family  member  at  Nintendo.  This 


IN    HEAVEN'S    HANDS         13 

meant  that  his  cousin  had  to  be  fired.  Hiroshi  wanted  there  never 
to  be  a  question  that  he  was  in  charge,  the  sole  heir. 

Weak  and  saddened,  Sekiryo  had  the  cousin  fired,  and,  in  1949, 
Hiroshi  Yamauchi  was  appointed  the  third  president  of  Nintendo. 
The  old  man  died  soon  thereafter,  never  sure  whether  his  family 
and  the  business  would  survive.  Since  Sekiryo  never  saw  the  suc- 
cess Hiroshi  would  eventually  have  with  Nintendo,  as  far  as 
Hiroshi  was  concerned,  to  Sekiryo  he  remained  an  ill-mannered, 
disrespectful,  and  spoiled  child.  Hiroshi  lived  with  the  knowledge 
that  he  had  betrayed  and  disappointed  the  two  most  important 
men  in  his  life,  his  father  and  grandfather. 

Young  President  Yamauchi  was  not  welcomed  by  Nintendo's 
employees.  They  resented  his  youth  and  inexperience  and  worried 
about  rumors  that  Yamauchi  planned  a  clean  sweep  of  longtime 
employees.  True  to  expectations,  Yamauchi  fired  every  manager, 
one  by  one,  left  over  from  his  grandfather's  reign,  in  spite  of  their 
years  of  dedicated  service  to  Nintendo.  Not  only  did  he  sever  what 
he  considered  dead  weight,  but  also  anyone  who  had  a  stake  in 
Nintendo's  conservative  past.  He  wanted  none  of  the  old  guard 
around  who  might  question  his  authority. 

He  changed  the  name  of  the  distribution  company  to  Nintendo 
Karuta  (Nintendo  Playing  Cards)  in  1951  and  established  a  new 
corporate  headquarters  on  a  lot  he  bought  in  town,  off  a  small 
street  called  Takamatsu-cho.  He  consolidated  all  the  Kyoto  manu- 
facturing there,  modernizing  the  card-making  process. 

In  an  attempt  to  compete  with  the  modern,  fashionable  cards 
that  were  being  imported  from  the  West,  in  1953  Nintendo  began 
manufacturing  the  first  plastic-coated  cards  in  Japan  (all  varieties 
of  cards  until  that  time  had  been  made  of  uncoated  paper).  In 
1959,  Nintendo  made  its  first  licensing  agreement — with  an  Ameri- 
can company,  Walt  Disney.  Playing  cards  backed  with  pictures  of 
Mickey  Mouse  and  other  Disney  characters  expanded  Nintendo's 
market  to  include  young  people  and  families.  The  Disney  cards 
were  advertised  on  television.  To  reach  the  new  market,  Yamauchi 
structured  a  new  distribution  system  that  would  get  the  cards  into 
larger  department  and  toy  stores.  The  results  were  instantaneous: 


aO  GAME    OVER 

Nintendo's  sales  shot  up.  The  company  sold  a  record  600,000  packs 
that  year. 

Yamauchi  was  still  discontented.  He  wanted  the  company  to 
expand  faster,  but  he  encountered  stumbling  blocks.  In  spite  of  his 
efforts  to  improve  the  quality  of  Nintendo's  Disney  cards  and 
other  Western-style  pinochle  and  poker  decks,  they  were  still  infe- 
rior to  the  ones  being  imported  from  America.  The  company's 
bread  and  butter,  hanafuda,  was,  by  its  nature,  a  modest  business; 
the  profits  were  constant,  but  there  was  little  room  for  growth  in 
that  market. 

Yamauchi  dropped  the  word  karuta  from  the  company  name, 
which  now  became  NCL— Nintendo  Company,  Ltd. — as  the  young 
president  planned  to  branch  out  into  new  businesses.  To  finance 
them,  he  took  Nintendo  public,  listing  the  company  on  the  second 
tier  of  the  Osaka  Stock  Exchange  and  on  the  Kyoto  Stock  Ex- 
change, and  became  Nintendo's  chairman. 

The  first  product  launched  by  the  new  company  was  a  line  of 
individually  portioned  instant  rice.  Add  water  and— presto!  It  was  a 
dismal  failure.  Yamauchi  then  opened  a  "love  hotel,"  with  rooms 
rented  by  the  hour.  The  business  was,  for  Yamauchi,  a  personal 
passion;  it  was  said  that  he  was  one  of  his  own  best  customers  (his 
infidelities  were  well  known — even  by  his  wife,  who  ignored  them). 

A  taxi  company  Yamauchi  started,  Daiya,  thrived,  although  he 
grew  tired  of  negotiating  with  powerful  taxi-driver  unions,  which 
demanded  high  salaries  and  expensive  benefits  for  their  members. 
He  soon  folded  that  company  and  closed  the  doors  of  the  love 
hotel.  He  planned  more  changes  as  he  moved  Nintendo  again,  this 
time  to  a  larger  building,  a  three-story  structure  of  beige  bricks 
with  black  door  and  window  frames  and  bars  on  the  windows. 

Yamauchi  had  concluded  that  he  wanted  new  businesses  that 
could  take  advantage  of  one  of  Nintendo's  strongest  assets,  its 
karuta  distribution  system,  which  reached  into  toy  and  department 
stores  throughout  Japan.  Nintendo's  roots  were  in  entertainment, 
and  there  would  be  no  more  rice  or  taxis  or  love  hotels.  Yamauchi 
set  Nintendo  on  a  new  course  as  an  entertainment  company. 

Hiroshi  Imanishi  had  the  demeanor  and  build  of  a  Rottweiler. 
He  gave  the  appearance  of  a  highly  cultivated  sophisticate  who  was 


IN    HEAVEN'S    HANDS  21 


still  common  and  accessible.  Clearly  he  was  also  fiercely  bright.  A 
recent  law  graduate  from  Doshisha  University,  he  accepted  an 
offer  from  Nintendo  in  spite  of  the  fact  that  he  found  the  president 
glum,  reserved,  and  formal.  Hiroshi  Imanishi  was,  nonetheless, 
intrigued  by  Hiroshi  Yamauchi.  There  was  an  attractive  cocksure- 
ness  and  obdurate  ambition  in  Yamauchi's  speeches  about  the 
dramatic  expansion  he  planned  for  Nintendo. 

He  revealed  the  details  sparingly.  It  sometimes  seemed  as  if 
Yamauchi  was  obsessed  by  details — "trifles,"  Imanishi  felt — and 
the  worry  over  minutiae  was  tiresome.  Other  times  there  were 
glimpses  of  a  calculated,  secret  plan.  It  was  a  frustrating  process,  as 
there  was  minimum  communication,  only  commands,  and  meet- 
ings often  turned  into  lectures. 

As  the  company  geared  up  for  a  series  of  new  ventures,  Imanishi 
worked  in  many  departments:  administration,  finance,  planning. 
He  eventually  became  the  general  affairs  manager.  But  regardless 
of  the  title  he  bore,  he  oversaw  the  majority  of  his  boss's  projects. 
The  task  by  1969  was  to  create  a  department  that  would  set  Nin- 
tendo on  its  new  course.  Called  simply  Games,  it  was  the  com- 
pany's first  research-and-development  office,  set  up  in  a  warehouse 
in  Uji,  a  Kyoto  suburb. 

Gunpei  Yokoi  had  grown  up  in  Kyoto,  where  his  father  was  the 
director  of  a  pharmaceutical  company.  He  graduated  from  college 
with  a  degree  in  electronics  and  then  made  the  rounds  of  Kyoto 
companies,  filling  out  applications.  The  short,  solid,  and  unpreten- 
tious man  who  wore  gray-lensed  glasses  was  hired  by  Nintendo  to 
maintain  the  assembly-line  machines  that  made  the  playing  and 
hanafuda  cards.  Yokoi  was  the  entire  maintenance  department  for 
several  months  before  Hiroshi  Yamauchi  called  him  into  his  office. 

Yokoi  sat  down  in  a  large  chair  opposite  the  chairman's  desk  and 
folded  his  hands  on  his  lap.  Imanishi  was  already  there,  drinking 
coffee.  Yokoi  listened  intently  as  Yamauchi  assigned  him  to  a  new 
project  in  the  newly  founded  Games  division.  He  was  to  work 
under  Hiroshi  Imanishi  to  create  a  department  for  komuki — engi- 
neering— and  make  something  for  Nintendo  to  sell  for  Christmas. 

"What  should  I  make?"  Yokoi  asked. 

Yamauchi  said,  "Something  great." 


GAME    OVER 


Yokoi  was  the  first  of  many  weekend  tinkerers  hired  by  Nin- 
tendo, the  sort  of  hobbyists  who  made  toys,  radios,  and  other 
mechanical  gadgets  from  spare  parts.  For  his  own  amusement,  he 
had  recently  invented  a  wooden  latticework  connected  by  bolts  and 
with  a  vice-grip  device  on  one  end.  When  the  two  leaves  of  the 
handle  were  pushed  together,  the  crisscrossed  pieces  extended  and 
the  grip  on  the  end  closed.  The  gadget  had  practical,  but  mostly 
whimsical,  uses  as  a  groping,  clasping  extension  of  the  hand. 

The  day  after  their  meeting,  Yokoi  demonstrated  his  contrap- 
tion for  Yamauchi  and  Imanishi.  It  brought  a  trace  of  a  smile  to  the 
chairman's  face.  He  gave  the  go-ahead  and  assigned  Imanishi  and 
Yokoi  to  begin  production  of  Nintendo's  first  toy,  the  Ultra  Hand. 
Advertised  on  television,  1.2  million  units  of  the  novelty  were  sold, 
at  about  800  yen  (roughly  $6  in  1970)  each.  For  Nintendo  in  those 
days,  it  was  a  resounding  success. 

From  then  on,  Yokoi's  job  was  to  come  up  with  inventions  and 
show  them  to  the  chairman.  Yamauchi,  although  he  had  no  engi- 
neering background,  had  an  uncanny  sense  about  products.  He 
gave  Yokoi  suggestions  and  challenged  the  young  man  to  improve 
his  designs.  Yamauchi,  Yokoi  says,  instinctively  knew  if  a  new  idea 
would  sell.  The  chairman  never  sought  a  second  opinion.  If  he 
liked  it,  he  instructed  Imanishi  to  begin  production. 

Yokoi's  inventions  resulted  in  Nintendo's  Ultra  series  of  toys. 
The  Ultra  Machine  was  a  pitching  machine  that  lobbed  a  lighter 
version  of  a  baseball  (that  could  be  batted  safely  indoors).  Seven 
hundred  thousand  units  sold  each  year  for  three  years  through 
1973.  Somewhat  less  successful  was  the  Ultra  Scope,  a  periscope- 
like device  with  a  lens  that  automatically  refocused  so  that  kids 
could  see  around  corners,  over  fences,  or  behind  them.  It  allowed 
kids  to  spy  on  each  other,  on  their  neighbors,  or,  often,  on  their 
parents.  "It  was  a  time  of  great  fun,"  Yokoi  recalls.  "I  saw  myself  as 
a  cartoonist  who  understood  movements  in  the  world  and  created 
abstractions  of  them." 

In  the  evenings,  Yokoi  dabbled  with  wires  and  oscilloscopes  and 
various  other  electronic  components  and  applied  some  of  his  ex- 
periments to  a  device  called  the  Love  Tester.  Yamauchi  loved  it.  A 
boy  and  girl  grabbed  on  to  the  handles  of  the  tester  and  then 
joined  their  free  hands.  A  meter  read  the  current  passing  through 


IN    HEAVEN'S    HANDS  23 

them  and  determined,  with  scientific  inaccuracy,  how  much  "love" 
they  had  between  them.  The  true  objective  of  the  device  had  noth- 
ing to  do  with  science  and  everything  to  do  with  holding  hands  in  a 
culture  in  which  holding  hands  was  still  pretty  risque.  Yokoi  noted 
that  in  America  or  Europe  a  love  tester  would  have  had  to  involve 
kissing.  In  Japan,  however,  a  device  that  inspired  hand  holding  was 
tantalizing  enough  to  become  a  hit. 

Yokoi's  R&D  department  grew  with  a  steady  addition  of  young 
engineers.  Yamauchi  pushed  them  with  his  emphatic  praise  and 
scorn.  He  never  pretended  to  want  to  foster  a  sense  of  team  play; 
rather,  he  openly  pitted  them  against  each  other.  While  many 
Japanese  companies  grew  because  of  loyalty  to  the  group  and  the 
corporate  good,  Nintendo  grew  because  of  its  engineers'  (and  its 
other  employees')  desire  to  please  Yamauchi.  "We  lived  for  his 
praise,"  one  engineer  says. 

The  next  major  Nintendo  product,  pivotal  to  positioning  the 
company  for  its  future  success,  came  to  the  company  by  chance. 
Masayuki  Uemura,  with  thick,  wiry  hair  pushed  to  one  side  and  an 
irrepressible  ear-to-ear  grin,  arrived  at  Nintendo  one  day  and  re- 
quested a  meeting  with  Gunpei  Yokoi. 

Born  in  1943  in  austere  and  beautiful  Nara,  Uemura  had  moved 
to  Kyoto  with  his  family  to  escape  the  wartime  bombing,  Kyoto 
then  being  one  of  the  safest  of  Japanese  cities.  His  father  had  sold 
kimonos  but  struggled  to  make  a  living  (he  eventually  opened  a 
record  shop  in  Osaka).  When  Uemura  was  a  child,  his  family's 
straitened  finances  meant  he  had  to  use  his  imagination  to  invent 
toys  and  games  for  himself.  Masayuki  learned  to  make  radio- 
controlled  airplanes  from  parts  he  found  in  junk  piles.  His  desire 
to  create  more  sophisticated  devices  led  him  to  work  his  way 
through  an  industrial  college,  where  he  trained  as  an  electronics 
technician. 

By  the  time  he  graduated,  Uemura  could  do  far  more  than  build 
toys,  and  he  found  a  good  job  with  an  electronics  manufacturer, 
Sharp,  selling  optical  semiconductors  used  in  the  solar  cells  that 
might  be  used  to  power  a  lighthouse,  or  a  robot  that  measured  the 
amount  of  rainfall  on  the  top  of  mountains. 

The  head  of  Sharp's  Kyoto  office  sent  Uemura  on  a  routine  sales 
call  to  Nintendo  to  see  if  he  could  drum  up  some  business  for  the 


24  GAME    OVER 

solar  cells.  The  visit  coincided  with  Yamauchi's  most  recent  man- 
date— for  Yokoi  and  his  engineers  to  investigate  electronic  toys 
beyond  the  Love  Tester.  In  a  meeting,  Yokoi  and  Uemura  con- 
cluded that  the  Sharp  cell  had  some  interesting  applications  for 
entertainment  products.  Shortly  afterward,  Yokoi  hired  Uemura 
away  from  Sharp. 

The  young  engineer  was  happy  to  leave  sales,  but  he  was  even 
more  thrilled  to  join  Nintendo  and  return  to  what  he  had  done  for 
fun  as  a  child:  make  toys.  "There  was  something  different  about 
Nintendo,"  Uemura  found.  "Here  were  these  very  serious  men 
thinking  about  the  content  of  play.  Other  companies  were  import- 
ing ideas  from  America  and  adapting  them  to  the  Japanese  mar- 
ket, only  making  them  cheaper  and  smaller.  But  Nintendo  was 
interested  in  original  ideas." 

When  Yokoi  saw  the  Sharp  solar-cell  battery,  he  envisioned  a 
unique  way  to  put  it  to  use.  He  and  Uemura  experimented.  Large 
solar  cells,  about  the  size  of  a  silver  dollar,  were  being  used  to 
collect  and  convert  light  into  electricity.  But  a  much  smaller  cell 
could  be  used  as  a  sensor  to  detect  light.  Yokoi's  idea  was  to  adapt 
the  technology  to  a  shooting  game,  using  solar  cells  as  targets. 

Yokoi  and  Uemura  worked  on  a  light  gun  that  could  be  pro- 
duced cheaply  enough  for  the  consumer  market.  The  "bullet" 
would  be  a  thin  beam  of  light.  If  the  beam  hit  a  tiny  solar  cell,  the 
cell  would  either  produce  or  cut  off  a  charge,  depending  on  the 
circuitry.  For  instance,  the  electricity  to  a  magnet  could  be  turned 
off  so  that  a  spring-loaded  target  could  be  let  loose — and  a  plastic 
bottle  of  beer,  pieced  together  as  if  it  were  a  puzzle,  could  be  made 
to  explode.  A  lion  could  roar.  A  stack  of  toy  barrels  could  be  blown 
apart. 

Packed  with  light-triggered  targets  (the  lion,  the  beer  bottle,  and 
the  like),  more  than  1  million  Nintendo  Beam  Gun  games  were 
sold  for  between  4,000  and  5,000  yen  ($30  or  so)  in  the  early  1970s. 
Nintendo  Co.,  Ltd.,  by  then  listed  in  the  first  section  of  the  Osaka 
Stock  Exchange,  grew  rapidly. 

Now  the  company  needed  more  space  to  keep  up  with  the  de- 
mand for  its  new  products,  so  Yamauchi  expanded  once  again.  To 
build  the  new  headquarters,  Yamauchi  bought  out  neighbors  and  a 
vacant  lot  alongside  the  company's  older  cement  building,  which 


IN    HEAVEN'S    HANDS  25 


was  retained  as  the  hanafuda  factory.  (Yamauchi  kept  the  business 
going  essentially  for  nostalgia's  sake:  cards  were  representing  a 
rapidly  diminishing  portion  of  Nintendo's  business.)  The  old  build- 
ing, whose  front  lawn  held  a  few  scattered  trees,  was  dwarfed  by 
the  new  structures  (eventually  three  were  constructed),  which  were 
high-tech  slick:  three  floors,  industrial  white,  huge  rectangular 
slabs.  A  crisp  blue  Nintendo  sign  in  both  kanji  and  roman  charac- 
ters could  be  seen  by  passengers  on  commuter  trains  and  from  the 
nearby  hillsides,  even  from  the  gardens  of  the  nearby  Tofuku-ji 
Temple.  A  guardhouse  was  built,  and  blue-suited  guards  from  the 
Kansai  security  firm  were  posted,  day  and  night,  out  front. 

Beam  Guns  were  still  flying  off  store  shelves  when  Yokoi  sug- 
gested to  Yamauchi  that  the  same  technology  could  be  used  in 
other  ways.  At  the  time,  skeet  shooting  was  a  popular  sport  in 
Japan.  On  a  whim,  Yokoi  had  bought  a  rifle  and  went  to  a  range  to 
try  it.  When  he  returned,  he  told  Yamauchi  that  the  technology  in 
the  light  gun  could  work  in  a  system  that  would  replicate  the 
experience  of  shooting  clay  pigeons. 

Yamauchi  absorbed  the  information  and  came  up  with  a  com- 
mercial application  for  it.  There  had  been  a  bowling  boom  in  Ja- 
pan in  the  1960s.  Alleys  sprang  up  all  over  the  country.  Since  then, 
enthusiasm  for  bowling  had  waned  and  many  alleys  were  closed 
down.  Yamauchi  decided  they  could  be  acquired  very  advanta- 
geously and  easily  transformed  into  "shooting  ranges."  Simulated 
clay  pigeons  would  appear  at  the  end  of  a  lane.  A  solar  cell  would 
detect  when  a  hit  was  made  and  tally  it  on  an  electronic 
scoreboard.  There  was  nothing  like  it  anywhere.  It  would  be  the 
closest  to  real  shooting  most  people  would  ever  get,  far  more 
realistic  than  the  amusement-park  shooting  ranges,  where  cork 
bullets  sailed  off  course  with  the  slightest  wind. 

The  technology,  however,  was  still  a  bit  tricky.  Yokoi,  who  was 
told  to  get  the  system  up  and  running,  encountered  a  series  of 
problems,  from  the  operation  of  moving  (or  apparently  moving) 
solar  collectors  to  the  coordination  of  the  timing  of  a  shot  with  the 
sound  of  its  report. 

Another  engineer  who  had  joined  Nintendo  was  assigned  to 
work  with  Uemura.  The  young  man,  Genyo  Tkkeda,  had  re- 


GAME    OVER 


sponded  to  a  newspaper  want  ad  for  a  toy  designer.  When  he  saw 
the  ad,  he  says,  "some  inspiration  entered  me." 

Takeda,  who  wore  a  polyester  trench  coat  even  indoors  in  mid- 
summer, was  a  colorful  addition  to  the  R&D  division.  Born  and 
raised  in  Osaka,  the  son  of  the  president  of  a  fabric-design  com- 
pany, he  had  graduated  in  1970  from  Shizuoka  Governmental  Uni- 
versity on  Honshu,  where  his  studies  often  took  a  backseat  to  his 
involvement  in  the  student  movement.  In  school,  Takeda  studied 
semiconductors,  but  for  fun  he  built  miniature  locomotives  and 
airplanes.  When  Gunpei  Yokoi  interviewed  him,  he  realized  that 
Takeda  would  easily  fit  into  his  growing  engineering  team.  He  put 
Takeda  to  work  with  Uemura  on  Yamauchi's  shooting-range  proj- 
ect. 

The  press  showed  up  to  document  the  grand  opening  of  the 
world's  first  Laser  Clay  Range  in  Kyoto  in  1973.  Just  as  a  television 
news  crew  was  getting  ready,  its  cameras  rolling,  the  light-shooting 
laser  gun  malfunctioned.  Before  anyone  realized  there  was  a  prob- 
lem, Takeda  climbed  into  the  box  behind  the  targets  and,  keeping 
himself  hidden,  shot  clay  pigeons  off  manually,  and  then  kicked 
the  controller,  which  lit  up  the  targets  that  were  supposedly  hit.  As 
far  as  the  television  audience  knew,  the  ranges  were  running 
smoothly.  They  were  packed  from  the  first  day  they  opened  their 
doors  to  the  public. 

Nintendo's  Laser  Clay  Ranges  became  the  hip  spot  for  an  eve- 
ning's entertainment  in  many  Japanese  cities,  and  soon  there  were 
variations  on  the  original  theme.  In  1974  came  "Wild  Gunman."  A 
16-mm  movie  projector  showed  actual  film  footage  of  a  "homicidal 
maniac"  on  a  screen  at  the  end  of  an  alley.  If  the  player  blasted  the 
wild  gunman  before  he  fired,  the  sensor  on  the  screen  detected  it 
and  the  player  scored.  The  image-projection-system  games  were 
sold  to  a  trading  company,  which  exported  them  to  America  and 
Europe. 

The  laser-gun  ranges  were  going  full  tilt,  but  Japan  had  been  hit 
by  the  world's  first  oil  shortage  in  1973;  the  country's  economy 
went  into  a  tailspin  and,  as  it  began  to  affect  discretionary  spend- 
ing, the  shooting  galleries  were  soon  empty.  Orders  from  abroad 
were  canceled  and  outstanding  bills  went  unpaid.  Nintendo's  in- 
vestment in  the  venture  had  been  so  great  that  the  company  was 


IN    HEAVEN'S    HANDS  2  7 

suddenly  on  the  brink  of  collapse.  Yamauchi  was  more  desperate 
than  ever  for  a  breakthrough  product. 

The  idea  came  from  a  boyhood  friend  of  Yamauchi.  The  man 
had  become  an  executive  with  one  of  Japan's  largest  electronics 
conglomerates.  Over  dinner  one  night  in  1975,  the  talk  was  all 
about  the  latest  technological  breakthroughs  in  the  electronics  in- 
dustry, primarily  the  importance  of  semiconductors  and  micropro- 
cessors. Yamauchi's  interest  was  piqued  when  he  realized  that 
these  technologies,  as  part  of  a  revolution  in  office  and  consumer 
products,  were  becoming  cheap  enough  to  utilize  in  entertainment 
products.  He  researched  the  first  traces  of  an  industry  that  was 
emerging  in  America.  Companies  such  as  Atari  and  Magnavox 
were  selling  devices  that  played  electronic  games  on  home  televi- 
sion sets. 

Yamauchi  negotiated  a  license  to  manufacture  and  sell 
Magnavox's  video-game  system  in  Japan.  The  machine  played  vari- 
ations on  the  first  commercial  American  video  game,  "Pong."  A 
beam  of  light  was  batted  back  and  forth  between  paddles  that  the 
players  controlled.  With  plastic  overlays  affixed  to  the  front  of  a 
TV  screen,  the  light  could  be  a  football,  a  tennis  ball,  a  soccer  ball, 
or  one  of  several  other  kinds  of  simple  games. 

Nintendo's  operation  wasn't  sophisticated  enough  to  develop 
and  manufacture  the  microprocessor-based  circuit  boards  that 
were  the  heart  of  the  game  system,  so  Masayuki  Uemura  suggested 
an  alliance  with  an  electronics  firm.  Nintendo  teamed  with  Mitsu- 
bishi to  build  the  video-game  system  and,  in  1977,  Nintendo  en- 
tered the  home  market  in  Japan  with  the  dramatic  unveiling  of 
Color  TV  Game  6,  which  played  six  versions  of  light  tennis.  It  was 
followed  by  a  more  powerful  sequel,  Color  TV  Game  15.  A  million 
units  of  each  were  sold.  The  engineering  team  also  came  up  with 
systems  that  played  a  more  complex  game,  called  "Blockbuster," 
as  well  as  a  racing  game.  Half  a  million  units  of  these  were  sold. 
Nintendo  had  quietly  entered  the  world  of  audio-visual  entertain- 
ment and  consumer  electronics. 

The  successful  TV  game  systems  allowed  Nintendo  to  tread  wa- 
ter a  while  longer,  but  they  were  neither  novel  enough  nor  versatile 
enough  to  be  the  revolutionary  product  Yamauchi  was  searching 
for.  He  kept  the  pressure  on  his  engineers,  directing  them  to  ex- 


28  GAME    OVER 


plore  new  ways  of  making  video  games.  "We  must  look  in  different 
directions,"  Yamauchi  said.  "Throw  away  all  your  old  ideas  in 
order  to  come  up  with  something  new." 

The  electronic-calculator  market  was  then  booming.  There  were 
so  many  types  available  that  the  prices  were  shrinking  almost  as 
fast  as  their  size — credit-card-size  calculators  were  selling  for  a 
thousand  yen,  under  $10.  What  else  could  be  done  with  that  minia- 
turized technology?  "The  Nintendo  way  of  adapting  technology  is 
not  to  look  for  the  state  of  the  art  but  to  utilize  mature  technology 
that  can  be  mass-produced  cheaply,"  says  Gunpei  Yokoi.  He 
sought  to  make  something  smaller,  thinner,  and  lighter  than  any- 
thing ever  seen — something  that  was  also  fun. 

It  turned  out  to  be  Game  &  Watch,  a  video  game  the  size  of  a 
calculator,  with  a  tiny  digital  clock  in  the  corner.  With  his  engi- 
neers, he  chose  components  from  Uemura's  old  company,  Sharp, 
and  developed  the  smallest  computer  games  ever  seen.  They 
weren't  the  easiest  things  to  play — the  controls  were  tiny — but  they 
were  a  novelty.  Nintendo  shipped  them  all  over  the  world  by  the 
tens,  and  then  hundreds,  of  thousands.  Many  of  the  Game  & 
Watches  in  circulation  were  illegal  bootlegs — Nintendo  lost  poten- 
tial millions  because  of  all  the  non-Nintendo  units  made  in  various 
Asian  cities — but  the  company  nevertheless  made  many  millions 
from  the  phenomenal  number  of  Game  &  Watches  they  sold. 

While  Yokoi  was  "thinking  small,"  Yamauchi  had  other  engi- 
neers thinking  big.  After  "Wild  Gunman"  and  his  first  taste  of  the 
arcade  business,  he  wanted  more  of  the  100-yen  pieces  (and  quar- 
ters) that  were  pouring  into  video  games  from  the  pockets  of  teen- 
agers around  the  world.  Popular  games  such  as  "Space  Invaders" 
were  behind  a  boom  in  the  coin-op  video-game  business. 
Yamauchi  wanted  Nintendo  to  become  a  major  player  in  arcades, 
and  so  his  team  came  up  with  games  like  "Hellfire,"  "Sheriff," 
"Sky  Skipper,"  and  a  battle  game  called  "Radarscope." 

Yamauchi,  meanwhile,  held  endless  meetings  at  Nintendo's 
growing  R&D  center  with  a  group  of  designers  under  Masayuki 
Uemura.  Uemura's  team  was  working  on  what  was  emerging  as  the 
most  significant  new  venture  for  Nintendo.  It  was  a  video-game 
system,  but  one  that  was  much  more  sophisticated  than  Color  TV 
Game  6  and  15.  In  America,  systems  had  been  released  that  played 


IN    HEAVEN'S    HANDS  29 

many  games  on  interchangeable  cartridges.  The  technology  in- 
sured that  the  system  would  never  become  "old  and  stale,"  as 
Yamauchi  put  it — as  long  as  "new  and  interesting"  games  would  be 
available  for  it. 

As  Yamauchi  learned  about  the  technology — knowledge  gained 
from  late-night  talks  with  Uemura  and  other  engineers — he  real- 
ized that  the  machine  under  development  could  do  far  more  than 
just  play  games.  "He  had  no  concept  that  he  was  building  a  com- 
puter, but  he  nonetheless  had  his  first  glimpse  of  the  incredible 
potential  of  a  home-computer  system  disguised  as  a  toy,"  says 
Uemura.  "He  saw  far  more  than  he  let  on  to  us."  In  the  short  term, 
Yamauchi  saw  a  system  that  could  be  the  basis  of  a  profoundly 
expanded  company  if  kids  loved  it  enough  and  if  they  wanted  more 
and  more  games  to  play  on  it  and  if  Nintendo  was  the  only  maker 
of  all  those  games. 

There  were  many  obstacles,  including  a  number  of  competitors 
in  the  field.  By  1983,  systems  had  already  been  released  in  Japan  by 
companies  from  the  United  States  (the  Atari  2600  and  Commo- 
dore Max  Machine)  and  from  Japan  (Epoch's  Cassette  Vision, 
Bandai's  Intellivision,  Takara's  Game  Personal  Computer  M5, 
Tomy's  Pyuta,  and  Casio's  and  Sharp's  small  game-playing  com- 
puter, the  MSX).  Yamauchi  told  Uemura  he  must  "develop  some- 
thing that  other  companies  cannot  copy  for  at  least  one  year.  It 
must  be  so  much  better  that  there  will  be  no  question  which  system 
the  customers  will  want." 

For  Uemura,  the  greatest  challenge  was  not  the  technology; 
price  was  the  crucial  factor.  Yamauchi  wanted  the  system  in  many, 
many  homes,  so  it  had  to  be  cheap  enough  so  that  almost  everyone 
could  buy  it.  All  the  machines  currently  on  the  market,  except  for 
the  Epoch  system,  were  selling  for  30,000  to  50,000  yen  ($200  to 
$350).  Yamauchi  set  a  goal  of  9,800  yen,  less  than  $75.  At  the  same 
time,  the  system  had  to  do  what  other  systems,  whether  Japanese 
or  American,  could  do,  but  more  and  better. 

Uemura  examined  the  competitors'  machines.  They  were  im- 
pressive in  some  ways.  Built  mostly  by  engineers  with  expertise  in 
office  computers,  they  could  generate  still  pictures  and  alphanu- 
merics,  as  well  as  perform  complex  calculations.  But  game  play, 
Uemura  believed,  had  essentially  different  requirements.  The 


GAME    OVER 


movement  of  characters  and  backgrounds  on  the  screen  had  to  be 
far  more  active,  more  believable,  than  on  the  other  systems;  it 
would  have  to  approach  the  quality  of  fast-speed  animation.  A  16- 
bit  processor  could  have  done  it  all  with  ease,  but  Nintendo  would 
have  to  make  do  with  a  less  powerful  8-bit  processor  if  the  price 
was  going  to  be  kept  low. 

For  ideas,  Uemura  picked  the  brains  of  the  engineers  who 
worked  on  Nintendo's  arcade  games.  The  arcade  games  had  big- 
ger, more  expensive  processors,  but  Uemura  was  most  interested 
in  the  thinking  behind  the  games,  not  the  hardware.  For  a  coin- 
operated  game  to  make  money,  players  had  to  become  immersed 
in  it  as  soon  as  the  first  coin  was  inserted.  Many  senses  had  to  be 
taken  over  almost  instantly  to  make  the  game  play  "hot,"  to  use 
Uemura's  term.  The  entire  consciousness  of  a  player  had  to  be 
captured.  There  seemed  to  be  two  keys  to  accomplishing  this:  fast 
action,  or  a  combination  of  fast  action  and  intellectual  challenge. 
The  headier  stuff  was  up  to  the  game  designers,  but  fast  action 
required  complex  and  expensive  circuitry. 

Uemura  spent  eighteen-hour  days  with  the  arcade  engineers 
trying  to  determine  the  essence  of  the  key  components  to  the 
circuitry  in  the  best  coin-operated  games.  Only  that  essence  could 
be  carried  over  to  the  central  processing  unit  of  the  new  system. 
Finally  he  chose  a  relatively  standard  microprocessor  called  a 
6502,  but  the  one  low-cost  chip  couldn't  power  all  the  aspects  of  a 
complex  video  game.  One  chip  could  control  the  information  re- 
quired for  character  movement  and  the  interaction  between  the 
machine  and  the  player,  but  if  it  had  to  do  more  than  that,  it  would 
bog  down.  A  second  chip  was  needed  to  control  the  television 
screen  itself — to  generate  bright  colors,  process  pictures,  and  move 
them  at  a  very  high  speed. 

Other  companies'  game  machines  used  an  integrated  circuit 
made  for  old-model  personal  computers,  Texas  Instruments' 
T19918,  which  allowed  six  to  eight  colors.  Nintendo's  machine  had 
to  have  more  colors  for  the  better  graphics  Uemura  sought  (it 
ended  up  with  fifty-two  colors).  Uemura,  together  with  his  growing 
stable  of  engineers  and  programmers,  slaved  over  calculations  and 
experiments  to  determine  the  maximum  number  of  sprites  (similar 


IN    HEAVEN'S    HANDS  31 

to  the  dots  of  a  television  picture)  that  could  be  generated  on  the 
screen  in  almost  no  time.  The  first  calculation  gave  a  number  that 
was  unsatisfactory;  more  sprites  were  needed  if  game  play  was 
going  to  feel  noticeably  more  realistic  than  on  the  competitors' 
machines.  The  circuitry  was  modified.  More  experiments  were 
conducted  to  determine  how  big  an  object  and  how  many  objects 
could  move  at  a  time,  and  how  many  changing  functions  could  be 
built  into  one  semiconductor.  "We  had  to  accomplish  this  exactly," 
Uemura  says.  "It  was  the  order  from  the  president.  So  much  was 
riding  on  these  experiments." 

Nintendo's  engineers  could  take  the  design  of  the  two  key  chips 
only  so  far.  They  had  to  get  the  expertise  of  an  outside  company. 

To  determine  who  that  would  be,  Uemura  and  Yokoi  met  with 
semiconductor-company  representatives.  It  had  been  determined 
that  the  two  custom  chips  that  were  needed  were  the  basic  central 
processing  unit  (CPU)  and  the  picture  processing  unit  (PPU).  A 
supplier  had  to  be  able  to  help  design  and  then  produce  them  both, 
Yamauchi  insisted,  for  a  rock-bottom  price. 

It  was  not  easy  to  be  a  supplier  for  Nintendo.  The  company's 
demands  were  rigid  and  exacting.  Designs  would  change  overnight 
and  suppliers  would  have  to  be  ready  to  change  specifications  on 
demand.  "The  most  important  thing  we  looked  for  in  a  supplier 
was  the  brain  to  cope  with  us,"  Yokoi  says.  "Unfortunately,  we 
found  that  most  companies  are  not  flexible.  Most  companies  move 
too  slowly.  That  was  not  acceptable." 

Given  the  prices  Yamauchi  would  pay,  the  only  way  a  partner- 
ship with  Nintendo  could  pay  off  was  in  volume  of  sales — an  enor- 
mous number  of  chips  would  have  to  be  sold.  Many  major 
companies  wouldn't  gamble  on  Nintendo.  "Now  they  wish  they 
had,"  Uemura  says. 

Uemura  went  to  Ricoh,  the  electronics  giant,  with  his  prelimi- 
nary circuit  diagrams.  The  chips  he  needed,  he  said,  had  to  cost  no 
more  than  2,000  yen,  which  is  why  they  had  been  scaled  down  to 
perform  only  essential  functions.  It  happened  to  be  a  slow  time  for 
Ricoh's  semiconductor  division,  so  the  company  was  willing  to 
work  with  Nintendo,  but  they  regarded  the  2,000-yen  price  point  as 
absurd. 


32  GAME    OVER 


Yamauchi  was  informed  of  Ricoh's  stand  and  he  made  a  pro- 
posal. "Guarantee  them  a  three-million-chip  order  within  two 
years,"  he  said.  "They  will  give  us  the  price  then." 

Others  inside  Nintendo  thought  Yamauchi's  tack  was  preposter- 
ous; leading  manufacturers  in  Japan  were  selling  20,000  to  30,000 
video-game  systems,  and  the  most  Nintendo  had  ever  sold  of  the 
TV  Game  6  and  15  was  1  million.  There  was  no  way  they  would 
ever  use  anywhere  near  3  million  chips. 

Yamauchi  demanded  that  the  proposal  be  made,  and  as  he  ex- 
pected, Ricoh  agreed.  When  an  agreement  was  signed  by  Uemura 
and  approved  by  Yamauchi,  the  head  of  Ricoh's  five-man  team  in 
charge  of  the  Nintendo  project  remarked  politely  that  he  was  look- 
ing forward  to  bringing  the  new  Nintendo  system  home  to  his 
children.  He  accomplished  more  than  that:  by  the  end  of  1986, 
Nintendo  would  become  Ricoh's  largest  customer,  representing  60 
to  70  percent  of  the  company's  semiconductor  division's  sales. 

Ricoh  was  not  Nintendo's  only  supplier.  The  larger  companies 
that  worked  with  Nintendo  included  Sharp,  Mitsumi,  Fuji,  and 
Hoshi.  There  were,  eventually,  thirty  subcontractors.  Contracts 
with  Nintendo  would  become  among  the  most  lucrative  in  the 
semiconductor  and  electronics  industries.  Ricoh  and  Sharp  would 
form  divisions  that  did  nothing  but  supply  Nintendo. 

Keeping  Hiroshi  Yamauchi  and  his  company  happy,  suppliers 
found,  was  difficult:  Yamauchi  insisted  on  lower  defect  rates  than 
any  other  customer.  But  it  was  also  rewarding.  A  1991-92  survey 
indicated  that  Nintendo  was  spending  $1  billion  on  semiconduc- 
tors each  year. 

As  development  of  the  new  video-game  system  continued,  the 
engineers  brought  some  of  their  questions  to  Yamauchi.  What  had 
to  be  included  in  the  game  console?  Since  the  system  was  actually 
a  small  computer,  it  could  have  all  the  extras  that  computers  could 
have.  Should  there  be  a  disk  drive  which  could  read  and  write 
information?  Should  it  have  a  keyboard?  Should  it  have  a  data 
port,  through  which  information  could  be  sent  and  received  to  the 
system?  The  system  could  have  a  modem  that  would  hook  up,  via 
telephone  lines,  to  other  game  players  or  a  central  Nintendo  termi- 


IN    HEAVEN'S    HANDS  33 


nal.  It  could  have  large  amounts  of  memory  that  would  accommo- 
date more  complicated  programs. 

Yamauchi  was  looking  far  down  the  road  when  he  cautiously 
answered  the  engineers'  questions.  Although  he  eliminated  any- 
thing that  would  add  too  much  cost,  he  built  in  future  expansion 
that  went  far  beyond  video  games. 

In  the  Japanese  edition  of  The  Japan  That  Can  Say  No,  the 
book's  coauthor  (with  Shintaro  Ishihara),  Sony's  founder  and 
chairman,  Akio  Morita,  slaps  American  corporate  wrists  for  short- 
sightedness. "We  Japanese  plan  and  develop  our  business  strate- 
gies ten  years  ahead  of  time,"  he  wrote.  When  he  asked  an 
American  businessman  if  U.S.  companies  plan  so  much  as  a  week 
ahead  of  time,  he  was  told,  "No,  ten  minutes."  Nowhere  is  the 
repercussion  of  that  difference  more  obvious  than  in  the  game 
system  Hiroshi  Yamauchi  created.  It  anticipated  a  future  that 
would  not  be  revealed  for  a  decade  but  which  had  the  potential  to 
propel  Nintendo  into  the  forefront  of  electronics  and  entertain- 
ment companies. 

Yamauchi  instructed  Uemura  to  leave  off  the  frills.  No  keyboard 
— it  might  scare  off  customers.  No  modem  or  disk  drive.  The  sys- 
tem would  play  games  on  cartridges,  not  disks.  Floppy  disks  were 
threatening  to  computerphobes  and,  more  important,  they  were 
copiable. 

The  system  would  have  minimum  memory,  since  memory  was  so 
expensive,  but  it  would  have  more  than  its  competitors'.  Atari's 
system  had  256  bytes  of  RAM  (random  access  memory,  the 
amount  of  instructions  a  central  processing  unit  can  refer  to  at  one 
time);  the  Nintendo  system  would  have  2,000  bytes  of  RAM.  In 
addition,  games  for  the  new  Nintendo  machine  could  be  far  more 
complex  than  the  most  powerful  Atari  games;  a  Nintendo  cartridge 
could  contain  thirty-two  times  more  computer  code  than  an  Atari 
cartridge. 

Yamauchi  cut  out  all  extraneous  devices  to  save  money,  but  he 
told  the  engineers  to  include,  for  a  trivial  added  cost,  circuitry  and 
a  connector  that  could  send  or  receive  an  unmodified  signal  to  the 
central  processor.  The  connector  could  pave  the  way  for  expansion 
— the  addition  of  anything  from  a  modem  to  a  keyboard.  It  was 


GAME    OVER 


why  the  machine  would  later  be  called  Yamauchi's  Trojan  Horse:  It 
slipped  into  living  rooms  with  nothing  but  a  pair  of  controllers, 
innocently  toylike,  yet  it  included  the  capability  to  do  far  more 
than  play  games.  Nintendo  boasted  about  it  much  later.  "In  the 
initial  stages  of  [the  system's]  development,  we  foresaw  these  pos- 
sibilities," reads  a  1989  corporate  report.  "As  such,  we  built  a  data 
communications  function  into  the  system  and  provided  it  with  a 
connection  terminal  for  an  adaptor."  Uemura  modestly  says  that 
the  plan  worked  so  well  because  "we  were  lucky."  But  Genyo 
Takeda,  a  friend  of  Uemura,  says,  "He  was  so  much  an  amateur 
that  when  Yamauchi  told  him  to  make  this  thing,  he  didn't  know 
that  it  could  not  be  done." 

There  were  more  practical  and  aesthetic  decisions  along  the 
way.  Steve  Jobs's  obsession  to  design  the  perfect  mouse  for  the 
original  Macintosh  was  no  greater  than  Yamauchi's  attention  to 
the  details  of  the  controllers.  Should  there  be  one  or  two  or  more 
buttons?  Should  the  system's  casing  have  round  or  square  edges? 
What  color  should  the  system  be — a  computer-like  gray  or  beige, 
or  a  more  playful  color?  Should  the  system  box  look  more  like  a 
computer  or  a  toy?  (The  answers  they  came  up  with  were:  two 
buttons  on  the  right  controller  plus  a  directional  pad  and,  on  the 
left  controller,  a  simple  microphone  through  which  one  could 
"talk"  to  the  system;  softer,  less  threatening,  rounded  edges;  and 
red  and  white  plastic,  to  make  the  unit  as  toylike  as  possible.) 

The  year  1983  was  a  significant  one  for  Nintendo.  Yamauchi  had 
the  new  Uji  plant  expanded  to  increase  the  company's  production 
capacity.  His  stock  became  listed  in  the  most  respected  first  tier  of 
the  Tokyo  Stock  Exchange.  And  he  began  selling  the  system  his 
men,  after  months  of  marathon  work,  shrouded  in  secrecy,  had 
created. 

The  system  was  selling  for  more  than  Yamauchi  had  planned 
(about  $100),  but  it  was  still  less  than  half  the  price  of  the  competi- 
tion. In  May,  he  addressed  the  Shoshin-kai  Group,  a  wholesalers' 
group.  He  conceded  that  his  new  video-game  player  was  priced  so 
low  that  wholesalers  wouldn't  make  much  profit  on  it.  "But,"  he 
said,  "I  guarantee  that  it  will  sell  a  lot  because  of  the  great  games." 
He  implored  them  to  back  the  machine  in  spite  of  the  low  margin. 
"Forgo  the  big  profits  on  the  hardware,"  he  said,  "because  it  is 


IN    HEAVEN'S    HANDS 


really  just  a  tool  to  sell  software.  That  is  where  we  shall  make  our 
money."  At  the  meeting,  Yamauchi  announced  the  name  of  his 
new  system.  Here,  he  said,  was  Japan's  first  Family  Computer.  He 
dubbed  it,  for  short,  the  Famicom. 

Pushed  by  a  barrage  of  advertising,  500,000  Famicoms  flew  off 
the  shelves  in  the  first  two  months.  Six  months  later,  however,  a 
catastrophe  occurred  before  the  Japanese  New  Year,  the  toy  in- 
dustry's busiest  season.  There  were  at  first  a  few  calls  from  retail- 
ers. Then  a  few  more.  Masayuki  Uemura  and  Gunpei  Yokoi  were 
called  into  Yamauchi's  office.  They  were  told  that  certain  games 
for  the  Famicom  caused  the  system  to  freeze. 

The  engineers  nervously  returned  to  their  labs  and  worked  on 
replicating  the  malfunction.  Finally,  there  it  was,  trouble  with  one 
of  the  integrated  circuits  that  got  locked  when  certain  information 
traveled  on  certain  pathways,  like  a  multicar  pile-up  on  a  badly 
designed  freeway. 

They  trudged  back  to  Yamauchi's  office  and  explained  the  prob- 
lem and  the  required  solution.  The  circuitry  on  the  chip  had  to  be 
corrected.  They  expected  Yamauchi  to  go  into  an  explosive  tirade. 
This  was  extremely  expensive  news. 

Yokoi  suggested  that  the  company  could  replace  units  when 
customers  complained.  Hiroshi  Imanishi,  who  was  working  on  the 
marketing  of  the  new  machine,  said  that  the  problem  could  be 
more  severe  than  whatever  number  of  units  had  the  defective 
chips;  it  could  cost  more  than  the  hundreds  of  thousands,  maybe 
millions,  it  would  cost  to  fix  or  replace  machines.  Imanishi  said  it 
would  hurt  customers'  opinion  of  Nintendo.  Worse,  much  of 
Yamauchi's  window  of  a  year — the  year  that  it  would  take  competi- 
tors to  try  to  copy  the  Nintendo  machine  and  get  it  out  the  door — 
would  be  lost.  A  delay  would  allow  competitors  to  swoop  in  and 
capture  the  customers  that  Nintendo  had  worked  so  hard,  and 
spent  so  much  money,  to  win. 

Yamauchi  listened  to  the  opinions  of  his  staff  but  ignored  them. 
"Recall  them  all,"  he  said. 

Systems  in  stores  and  warehouses  were  pulled  off  the  shelves, 
returned  to  the  plant  in  Uji,  and  retooled  (the  bad  chips  replaced). 
In  the  end,  Nintendo  lost  millions  of  dollars  by  missing  the  prime 
sales  season,  but  Yamauchi's  gamble  paid  off. 


GAME    OVER 


After  the  first  million  Famicom  systems  had  been  sold,  there  was 
still  no  sign  of  a  slowdown.  Once  several  million  families  had  a 
Famicom  and  desperately  wanted  games,  Nintendo  could  sell  all  it 
could  produce.  Yamauchi  saw  how  Nintendo's  emphasis  would 
conceivably  switch  from  hardware,  with  its  limited  market,  to  soft- 
ware, whose  market  was  without  limits. 

Desperate  retailers  called  Nintendo,  frantically  demanding 
product.  New  games  were  anticipated  with  a  fervor  that  shocked 
store  owners,  distributors,  and  parents.  Kids  camped  out  in  front 
of  department  stores  and  toy  shops  to  snap  up  copies  before  the 
games  sold  out.  Nintendomania  was  beginning,  and  Yamauchi, 
raking  in  more  money  than  he  had  ever  seen  before,  couldn't  feed 
the  frenzy  quickly  enough. 

The  success  of  the  Famicom  was  unprecedented.  Eventually,  the 
fourteen  competing  home  video-game  machine  companies  with- 
drew from  the  market.  The  MSX  was  put  in  its  place  as  a  personal 
computer,  not  a  game  machine.  Sega,  a  small  arcade-game  com- 
pany, released  a  competitor  called  the  SG-1000  the  same  year 
Nintendo  released  the  Famicom,  but  it  fizzled.  And  in  spite  of 
updated  systems  released  by  Atari,  Nintendo  had  no  competition 
to  speak  of.  What  had  begun  as  the  Yamauchi  family  business  was 
inconspicuously  on  its  way  to  becoming  one  of  the  most  successful 
enterprises  in  the  history  of  Japan — or,  indeed,  the  world. 


\ 


\    3 

I,  MARIO  \^  J 


"What  if  you  walk  along  and  everything  that  you  see  is  more  than  what  you  see — 
the  person  in  the  T-shirt  and  slacks  is  a  warrior,  the  space  that  appears  empty  is  a 
secret  door  to  an  alternate  world?  What  if,  on  a  crowded  street,  you  look  up  and 
see  something  appear  that  should  not,  given  what  we  know,  be  there?  You  either 
shake  your  head  and  dismiss  it  or  you  accept  that  there  is  much  more  to  the  world 
than  we  think.  Perhaps  it  really  is  a  doorway  to  another  place.  If  you  choose  to  go 
inside  you  might  find  many  unexpected  things." 

— Sigeru  Miyamoto 


Yamauchi's  Famicoms  were  selling  as  fast  as  Nintendo  built  them. 
The  success  brought  with  it  an  unexpected,  although  not  unwel- 
come, problem.  A  video-game  system,  like  any  other  computer, 
could  be  elegant  and  powerful,  yet  it  was  only  as  useful  as  the 
software  it  showcased.  The  Famicom  could  have  been  as  powerful 
as  a  mainframe  computer,  but  no  one  would  have  noticed  if  the 
games  were  ordinary.  Now  the  problem  was  that  there  were  not 
enough  good  games. 

Yamauchi  had  wisely  anticipated  the  importance  of  software  and 
prepared  for  it.  One  of  the  instructions  he  had  issued  to  Uemura 
was  that  the  Famicom  must  "be  appreciated  by  software  engi- 
neers." It  had  to  be  easy  to  program  and  able  to  do  the  kinds  of 
things  that  game  designers  dreamed  of  doing.  Any  company,  given 
the  time,  could  copy  the  Famicom  hardware.  The  key  to  staying 
ahead  was  software.  By  the  time  a  competitor  came  out  with  a 


3B  GAME    OVER 

game  that  was  as  good  as  a  successful  Nintendo  game,  Nintendo 
had  to  be  releasing  a  game  that  left  the  others  in  the  dust. 

Nintendo  would,  Yamauchi  decided,  become  a  haven  for  video- 
game artists,  for  it  was  artists,  not  technicians,  who  made 
great  games.  "An  ordinary  man,"  Yamauchi  said,  "cannot  develop 
good  games  no  matter  how  hard  he  tries.  A  handful  of  people  in 
this  world  can  develop  games  that  everybody  wants.  Those  are  the 
people  we  want  at  Nintendo."  He  was  interested  only  in  the  one 
genius,  as  he  put  it,  who  would  drive  Nintendo.  He  wanted  to  turn 
Nintendo  into  the  single  place  the  hottest  game  designers  wanted 
to  be  associated  with.  Since,  in  Japan,  most  employees  stayed  with 
one  company  for  their  entire  career,  it  was  generally  impossible  to 
seduce  good  designers  from  other  companies.  That  meant  that 
they  would  have  to  come  to  Nintendo  on  their  own,  fresh  from 
college. 

Yamauchi  wanted  to  create  a  place  where  his  geniuses  would  be 
encouraged  and  inspired.  But  how?  He  was  used  to  badgering  and 
cajoling,  or  simply  demanding — and  that  was  certainly  not  the 
same  thing  as  inspiring  people,  nurturing  them.  His  reputation  for 
aloofness  and  cockiness  had  grown  with  Nintendo.  He  luxuriated 
in  his  position  as  the  merciless  Goliath  of  his  industry.  He  was 
already  infamous  for  squashing  people — or  companies — that 
crossed  him.  He  made  up  his  own  rules  as  he  went  along  and  he 
refused  to  play  politics  (which  enraged  government  officials,  who 
were  used  to  being  catered  to).  But  could  he  inspire!  "Research 
and  development  is  the  most  difficult  department  to  control,"  he 
observed.  "It  is  difficult  to  control  artists  because  they  do  not  want 
to  compromise." 

The  chairman  had  no  engineering  background,  but  he  discov- 
ered how  to  stimulate  innovative  design.  Isolated  from  the  rest  of 
Japan's  industrial  hubs  in  Osaka  and  Nagoya,  and  from  the  finan- 
cial capital  of  Tokyo,  Yamauchi  ignored  the  textbook  corporate 
examples.  He  had  hand-picked  his  three  chief  engineers — Yokoi, 
Uemura,  and  Takeda — a  long  time  ago,  and  they  had  done  good 
work  for  him.  In  order  to  push  them  (and  to  learn  more  about  how 
the  engineers  and  designers  worked),  in  1984  Yamauchi  made  him- 
self the  supervisor  of  all  R&D  at  Nintendo,  "the  heart  of  this 


I.    MARIO  39 

company."  He  supported  them  with  significantly  more  staff  and 
resources. 

Yamauchi  arrayed  his  chiefs  directly  below  him,  each  of  them  in 
charge  of  his  own  group:  R&D  1,  2,  and  3.  Within  an  R&D  group 
were  many  teams,  which  were  pitted  against  each  other.  The  teams 
in  the  groups  working  mostly  on  hardware  tried  to  outdo  the  oth- 
ers in  the  virtual  miracles  they  came  up  with,  and  the  software 
teams  competed  to  make  the  greatest  games  that  had  ever  been 
seen. 

Yamauchi  has  never  played  a  video  game  in  his  life  and  he  had 
little  interest  in  them.  Still,  he  alone  was  the  judge  and  jury  when  it 
came  to  deciding  which  games  Nintendo  would  release.  It  was 
audacious,  and  he  was  either  remarkably  intuitive  or  terrifically 
lucky.  Yamauchi  was  criticized  for  being  ruthless  when  it  came  to 
many  of  his  business  practices — manipulating  the  market,  terror- 
izing employees — but  no  one  questioned  his  genius  when  it  came 
to  choosing  Famicom  games.  A  Nintendo  manager  criticized 
Yamauchi  for  his  obstinacy  but  praised  his  instinct:  "It's  like  a 
sense  for  the  fashion  business,  knowing  what  will  become  hot  and 
popular  next  season.  He  can  read  a  few  years  in  advance.  He  is  so 
certain  that  he  is  right  that  he  listens  to  no  one." 

His  R&D  groups  competed  among  themselves  for  Yamauchi's 
attention  and  praise,  but  there  was  no  doubt  about  their  collective 
place  in  the  company.  They  were  his  stars.  While  most  companies 
directed  input  from  market  research  and  from  their  sales  force  to 
their  R&D  sections,  Yamauchi  in  those  days  insisted  that  R&D 
was  sacrosanct:  no  one  told  his  creative  people  what  to  create.  The 
marketing  department  saw  games  only  when  they  were  completed. 
"He  believes  the  marketing  people  will  only  look  at  what's  popular 
right  now,"  Hiroshi  Imanishi  says.  "And  if  we  make  the  game 
based  on  what's  popular  right  now,  the  game  will  not  be  new  and 
fresh." 

The  personal  attention  their  leader  lavished  on  his  inventors  was 
a  mixed  blessing.  A  nod  from  Yamauchi  could  make  a  designer's 
day — or  week,  or  month.  Engineers  were  ecstatic  when  they  came 
up  with  a  game  that  delighted  him.  On  the  other  hand,  an  admon- 
ishment could  be  devastating.  "Months  of  work  can  be  disposed  of 


40  GAME    OVER 


with  a  scowl,"  says  an  engineer  who  left  Nintendo.  The  project  is 
dead,  instantly.  His  victims  suggested  that  Yamauchi's  judgments 
were  capricious  or  the  product  of  his  moods,  and  that  his  callous- 
ness caused  a  great  deal  of  frustration  and  anger.  Engineers  occa- 
sionally left,  and  others,  exhausted  and  disappointed,  were  sent  on 
sabbatical.  They  were  told,  "The  company  is  making  money;  don't 
worry.  Spend  the  time,  relax.  Come  back  fresh."  Most  commonly, 
designers  whose  work  was  rejected  would  only  redouble  their  ef- 
forts, determined  to  have  their  game  chosen  the  next  time. 
Yamauchi's  autocratic,  often  brutal  system  worked. 

The  R&D  groups  worked  in  spacious,  private  laboratories  in  the 
development  wing  of  the  main  Nintendo  building.  In  these  white- 
walled,  white-ceilinged  rooms,  rows  of  computer  monitors  were  set 
up  on  tables.  Their  screens  shone  with  blow-ups  of  circuit  boards 
that  looked  like  magnified  city  maps.  Other  screens,  stacked  as  if  in 
a  television  showroom,  displayed  details  of  game  characters — the 
left  cartoon  hand  of  a  boxer,  for  example.  Still  other  screens  were 
filled  with  column  after  column  of  fluorescent,  sallow-yellow 
numerals. 

Here  and  there  were  drafting  tables,  covered  with  schematic 
blueprints  for  games  or  scribbled  calculations.  Laser  printers, 
networked  to  dozens  of  terminals,  spewed  book-length  programs, 
and  Xerox  machines  churned  out  copies  of  sectional  drawings  of 
game  worlds. 

In  the  design  rooms,  the  men  (no  women)  worked  methodically 
as  they  competed  to  make  products  that  would  become  the  prod- 
uct. The  goal  was  excellence — anything  less  would  wind  up  on  the 
scrap  heap.  Yamauchi  believed  that  it  was  far  better  to  put  all  his 
resources  into  the  production  of  one  or  two  hit  games  a  year  rather 
than  several  minor  successes.  When  he  released  new  games,  he 
only  had  to  manufacture,  package,  market,  and  advertise  those 
few,  but  that  meant  that  the  stakes  for  each  Nintendo  game  were 
extremely  high.  The  games  had  to  warrant  all  the  costs  of  develop- 
ment (up  to  $1  million  per  game)  and  marketing  (up  to  several 
million  more). 

The  high  stakes  meant  there  wasn't  always  wa  (harmony)  within 
the  company.  Yet  in  spite  of  the  competitiveness,  the  three  chief 


I,    MARIO  4  1 

designers  respected  each  other  and,  when  they  were  called  on  to 
do  so,  worked  together  well.  Part  of  the  reason  the  competition 
didn't  turn  them  against  one  another  was  that  Yamauchi  parceled 
out  his  praise.  On  the  other  hand,  if  any  one  team  had  too  much 
success,  it  could  be  expected  to  be  slapped  down.  The  result  was 
that  each  team  came  to  excel  in  different  areas  and  at  different 
moments.  In  the  end  it  was  difficult  if  not  impossible  to  determine 
which  of  the  three  design  teams  contributed  more  to  Nintendo's 
growth. 

Takeda  says  Yokoi,  his  mentor,  was  "the  sharpest  designer." 
Besides  all  the  work  they  had  done  for  Yamauchi  in  the  past, 
Yokoi's  R&D  1  designed  Game  Boy,  which  would  become  another 
extraordinary  Nintendo  success.  His  team  of  thirty  engineers  were 
"a  band  of  samurai,"  says  a  colleague  outside  of  Japan.  They  oper- 
ated quietly,  with  less  recognition  than  the  others.  Their  leader  was 
nazonoyona,  an  enigma. 

Yokoi  was  the  oldest  of  the  top  engineers  (though  still  only  in  his 
forties)  and  the  most  like  traditional,  old-school  engineers  at  other 
companies  throughout  Japan.  He  wore  simple  short-sleeved  shirts, 
and  his  hair  was  cut  so  that  there  was  a  neat,  clean  line  around  his 
ears  and  neck.  He  was  dedicated  to  the  company  over  everything 
else;  he  was  a  Nintendo  man. 

The  games  from  R&D  1  would  be  some  of  Nintendo's  best.  One 
was  the  phenomenal  game  "Metroid."  In  the  video-game  world  of 
macho  stereotypes,  the  game's  hero  was  a  surprise.  Samus,  the 
warrior,  on  the  quest  to  destroy  the  Mother  Brain,  went  to  battle 
with  a  nifty  array  of  weapons  and  slick  moves,  dressed  in  a  space 
suit  and  helmet.  At  the  end  of  the  game,  after  the  Mother  Brain 
died  a  screaming,  light-spewing  death,  Samus  could  finally  relax 
and  take  off  his  helmet.  Long  blond  hair  fell  out.  Samus,  the  great 
warrior,  was  a  woman. 

The  greatest  contribution  of  Uemura's  team,  R&D  2,  was  the 
Nintendo  hardware  itself.  R&D  2  also  came  up  with  peripherals, 
including  the  Communications  Adapter  for  the  Nintendo  Net- 
work. Sixty-five  people  worked  with  Uemura,  whose  face  wore  a 
constant  expression  of  astonishment.  He  spoke  in  a  raspy,  hushed 
tone — Tom  Waits  after  a  few  bourbons — as  if  what  he  had  to 


GAME    OVER 


say  was  clandestine  and  dangerous,  which  it  sometimes  was. 
(Yamauchi  had  tapped  Uemura's  team  for  a  top-secret  project  that 
was  kept  under  wraps  for  years.) 

Takeda  ran  R&D  3,  which  would  design  games  such  as  "Star 
Tropics."  More  significant,  however,  was  some  of  the  technical 
magic  the  team  performed.  R&D  3  came  up  with  technology  that 
allowed  the  other  groups  to  make  games  that  the  original  Famicom 
hardware  could  never  have  powered  on  its  own.  The  first  Famicom 
cartridges  used  what  were  called  NROM  chips  (N  for  Nintendo 
and  ROM  for  Read  Only  Memory).  Unlike  computer  programs  on 
floppy  or  hard  disks,  these  programs  were  not  changeable.  A  game 
program  was  reproduced  onto  an  actual  integrated  microcircuit. 
Using  a  photographic  process,  the  circuit  was  duplicated  onto  thin 
silicon  wafers  that  were  sandwiched  together  and  attached  to  con- 
nectors. Through  them  the  information — the  game  program — was 
transmitted  to  other  components  in  the  system.  The  amount  of 
information  in  a  game  was  limited  by  the  size  of  the  ROM. 

Each  game  cartridge  had  two  main  chips,  one  for  the  program 
itself,  which  could  be  up  to  256K  (kilobytes)  and  one  for  the  on- 
screen characters,  which  could  be  64K.  Programs  for  games  and 
characters  had  to  fit  within  those  chips  until  R&D  3  designed  new 
kinds  of  cartridges. 

R&D  3  created  a  cartridge  called  UNROM,  which  allowed 
greater  memory  size  and  bank  switching.  A  RAM  (Random  Access 
Memory)  chip  was  a  place  to  store  information  until  it  was  needed 
by  the  computer's  processor.  Bank  switching  was  a  process  for 
grabbing,  from  that  stored  information,  whatever  was  needed 
whenever  it  was  needed.  A  new  game  screen,  complete  with  new 
kinds  of  enemies  and  waterfalls  and  creatures  (and  the  programs 
to  make  them  work)  could  be  retrieved  from  RAM  when  the 
player  arrived  in  that  "room." 

There  were  still  severe  limits  on  the  cartridges,  however.  The 
amount  of  information  that  could  be  switched  was  scant  and  the 
process  was  slow.  Takeda's  gang  tackled  the  limits  with  new  kinds 
of  chips  called  MMCs  (Memory  Map  Controllers).  They  made  the 
system  do  things  that  the  Famicom's  8-bit  processor  could  never 
have  approached  on  its  own.  Years  after  the  Famicom  was  intro- 


I.MARIO  -43 


duced,  games  seemed  to  get  more  and  more  complex.  It  was  as  if 
the  old  Apple  II  were  suddenly  powering  HyperCard.  Takeda's 
chips,  by  taking  on  some  of  the  Famicom's  processing  power,  es- 
sentially added  RAM  and  other  specific  powers  to  the  machine. 

The  Famicom  could  do  things  it  was  never  designed  to  do:  im- 
ages could  scroll  diagonally,  objects  could  move  quicker,  and  far 
more  could  happen  at  one  time.  The  system  itself  still  had  only 
2  kilobytes  of  RAM,  but  this  was  supplemented  by  the  custom- 
designed  sets  of  circuits  with  specialized  functions  in  the  MMCs. 
Some  of  the  circuits,  called  Logic  Gates,  increased  the  speed  and 
efficiency  of  the  background  computing  that  made  everything  hap- 
pen. Others  directed  the  program  to  specific  locations  in  the  mem- 
ory, traffic  cop  style.  They  were  smaller  and  cheaper  than  the  chips 
in  the  UNROM,  and  they  allowed  larger  program  and  character 
memory  size.  With  the  addition  of  the  first  MMC  chip,  the  poten- 
tial for  more  complex  and  sophisticated  games  had  arrived.  The 
first  examples  were  "The  Legend  of  Zelda,"  "Metroid,"  and  "Kid 
Icarus,"  three  breakthrough  games,  all  huge  sellers. 

Subsequent  MMC  chips  allowed  the  Famicom  to  do  even  more. 
With  MMC3,  the  screen  could  split  into  two  parts,  each  moving 
independently.  With  MMC5,  there  could  be  more  images  on  the 
screen  at  a  time.  Unaided,  the  Famicom  could  project  pictures  of 
960  tiny  square  pieces,  called  tiles,  but  only  290  could  be  unique, 
which  is  why  there  were  so  many  walls  full  of  bricks  or  other 
repeated  patterns  in  early  games.  MMC5  made  it  possible  for  all 
960  tiles  to  be  different.  It  also  processed  math  problems  on  its 
own,  freeing  up  the  main  processor.  Memory  size  for  games  with 
an  MMC5  shot  up  to  8  megabytes,  thirty-two  times  more  than  the 
original  cartridges. 

R&D  3  also  figured  out  a  way  to  include  a  battery  backup  system 
in  cartridges  that  allowed  some  games  to  store  information  inde- 
pendently—to keep  track  of  where  a  player  had  left  off,  or  to  track 
high  scores.  The  new  battery  system  could  store  the  data  for  the 
life  of  the  battery  (about  five  years). 

Takeda's  group  obsessed  over  the  highly  technical  and  the  ob- 
scure. The  fruits  of  their  labors  were  dramatic — most  of  the  best 
Nintendo  games  would  not  have  been  possible  without  them — but 


GAME    OVER 


they  were  not  always  obvious.  R&D  3,  nicknamed  "Rumania,"  was 
isolated  from  the  other  groups.  Its  motto  was  grand:  "There  are  no 
limitations,  no  boundaries;  since  we  are  on  our  own,  there  is  noth- 
ing we  cannot  do;  when  you  start  with  nothing  you  can  do  every- 
thing." Their  leader,  with  his  quizzical  glances  under  heavy  arching 
eyebrows  and  his  arcane,  light-bulb  brain,  boasts,  "We  have  to  have 
more  talented  people  because  we  are  given  unthinkable  tasks." 

Takeda's  twenty-person  staff  was  a  band  of  otaku — computer 
hackers  and  nerds.  They  were  the  consummate  eggheads  and 
dweebs.  "Becoming  maniacs,"  Takeda  said,  "is  the  idea." 

The  three  R&D  groups  were  immersed  in  their  respective  proj- 
ects one  day  when  Yamauchi  required  the  talents  of  a  designer. 
The  project  was  not  important  enough  for  him  to  pull  one  of  the 
key  members  from  their  work,  so  he  called  in  the  apprentice  in  the 
planning  department. 

Sigeru  Miyamoto  remembers  the  maze  of  rooms  in  the  paper- 
and-cedar  home  of  his  childhood.  Sliding  shoji  screens  opened  up 
onto  hallways,  from  which  there  seemed  to  be  a  medieval  castle's 
supply  of  hidden  rooms.  The  tiny  home  was  in  the  countryside  near 
Kyoto,  in  the  town  of  Sonebe,  where  his  parents  and  grandparents 
had  been  born  before  him.  The  surrounding  landscape  was 
Miyamoto's  playground:  he  fished  in  the  river,  ran  along  the  banks 
of  sodden  rice  fields,  and  rolled  down  hillsides. 

Across  the  sand-and-stone  street  from  his  home  was  a  rice  field. 
After  the  yearly  harvest,  when  the  field  was  dry,  it  became  a  park 
for  baseball  and  other  games.  He  played  there  with  neighborhood 
children  in  the  afternoons,  and  in  the  evenings  he  attended  Noh 
plays,  heroic  dance  dramas,  or  puppet  shows,  or  he  gathered  with 
his  family  at  one  of  the  neighbors'  homes  for  festive  dinners. 

The  Miyamoto  family  had  no  television  and  no  car.  Every  few 
months  they  traveled  by  train  to  Kyoto  to  shop  and  see  movies: 
Peter  Pan,  Snow  White.  At  home,  Miyamoto  lived  in  books,  and  he 
drew  and  painted  and  made  elaborate  puppets,  which  he  presented 
in  fanciful  shows.  After  school,  he  often  lit  out  into  the  countryside 
for  adventure.  He  had  to  pass  a  neighbor's  house  where  a  bulldog 
lay  in  wait  for  him.  The  dog  charged  every  time,  barking  and 
snapping,  and  Miyamoto  froze.  At  the  last  second,  the  dog's  chain 


I  ,    MARIO  45 


reached  its  limit  and  jerked  it  back.  Miyamoto  stood  just  out  of  the 
reach  of  its  salivating  jaws. 

Investigating  hillsides  and  creek  beds  and  small  canyons, 
Miyamoto  once  discovered  the  opening  of  a  cave.  He  returned  to  it 
several  times  before  he  worked  up  the  courage  to  go  in.  Lugging  a 
homemade  lantern,  he  went  deep  inside  until  he  came  to  a  small 
hole  that  led  to  another  cave.  Breathing  deeply,  his  heart  pound- 
ing, he  climbed  through.  He  never  forgot  the  exhilaration  he  felt  at 
this  discovery. 

The  family  moved  to  Kyoto,  where  Miyamoto  and  his  new 
friends  had  secret  meetings  in  the  family's  attic  at  which  codes  and 
passwords  were  traded.  There  were  dares  to  explore  forbidden 
places— a  neighbor's  yard  guarded  by  an  Akita;  another  neighbor's 
basement,  which  held  a  treasure  trove  of  trunks  stuffed  with  an- 
cient costumes. 

Miyamoto  wanted  to  be  a  performer,  a  puppeteer,  or  a  painter 
when  he  grew  up.  He  carried  pads  of  paper  and  pencils  and  drew 
nature  scenes  in  parks  and  along  the  river  that  divided  the  city.  In 
school,  while  his  teachers  lectured,  Miyamoto  daydreamed.  At 
night,  he  constructed  plastic  models  and  wood-and-metal  contrap- 
tions until  his  father  sent  him  to  his  room  to  study.  Math  and 
grammar  were  put  aside  for  drawing. 

Miyamoto  took  cartoon-making  seriously.  He  drew  a  figure  and 
then  invented  its  life  and  personality.  The  figures  wound  up  in 
intricately  drawn  flip  books.  At  school  he  organized  a  cartoon  club 
that  met  regularly  and  had  yearly  exhibitions. 

In  1970,  Miyamoto  entered  Kanazawa  Munici  College  of  Indus- 
trial Arts  and  Crafts.  It  took  him  five  years  to  graduate  because  he 
only  attended  class  about  half  the  time.  Instead  of  studying,  he 
spent  his  time  sketching  in  his  notebooks  and  listening  to  records. 
He  loved  the  Nitty  Gritty  Dirt  Band,  the  Country  Gentlemen,  and 
David  Grisman.  He  taught  himself  how  to  play  the  guitar— Ameri- 
can bluegrass  music,  of  all  things.  It  wasn't  easy  to  find  a  banjo 
player  in  Kyoto,  but  he  did,  and  the  duo  performed  at  coffeehouses 
and  parties.  His  friends  were  artists  and  musicians.  They  hunted  in 
record  shops  for  hard-to-find  (in  Kyoto!)  Kentucky  Colonels  LPs 
and  traveled  to  Tokyo  to  see  Doc  Watson  perform  live. 

When  he  finally  graduated,  Miyamoto  agonized  over  what  kind 


GAME    OVER 


of  job  he  should  get.  He  had  no  interest  in  traditional  business,  and 
he  knew  he  would  never  survive  the  monotony  of  a  rigidly  struc- 
tured corporation. 

Then  a  revelation  came  to  young  Miyamoto.  He  asked  his  father 
to  contact  an  old  friend,  Hiroshi  Yamauchi,  who  ran  Nintendo. 
The  elder  Miyamoto  asked  Yamauchi  to  meet  with  his  son,  a  re- 
cent graduate  with  a  degree  in  industrial  design,  who  was  looking 
for  a  job.  "We  need  engineers,  not  painters,"  Yamauchi  said,  but 
he  agreed  to  a  meeting  as  a  favor  to  his  friend. 

Miyamoto  was  twenty-four  in  1977,  when  he  entered  the  office 
of  the  Nintendo  chairman.  He  had  shaggy  hair,  boyish  freckles, 
and  a  cat-who-swallowed-the-canary  smile.  He  dressed  nicely,  and 
he  behaved  in  accordance  with  traditional  etiquette,  yet  there  was 
mischief  and  wonder  in  his  eyes.  Yamauchi  liked  the  young  man 
and  asked  him  to  return  for  another  meeting,  this  time  with  some 
ideas  for  toys. 

Miyamoto  returned  with  a  portfolio  and  a  large  sack  from  which 
he  produced  a  recent  invention.  It  was  a  clothes  hanger  designed 
for  children.  Nursery  schools  could  have  a  row  of  them  along  the 
wall,  he  explained.  Or  parents  could  put  them  in  children's  rooms. 
Regular  metal  hangers,  he  told  Yamauchi,  were  dangerous  for 
children;  the  pointed  hook  could  hurt  them,  even  poke  out  an  eye. 
His  hanger,  carved  out  of  soft  wood  and  covered  with  cheerful 
acrylic  paint,  was  in  the  shape  of  an  elephant's  head.  Clothes  were 
hung  on  the  ears  and  turned-up  trunk.  The  elephant's  neck  fit 
snugly  like  a  puzzle  piece  onto  a  knob  that  attached  to  a  wall. 

Miyamoto  had  other  hangers  as  well:  a  bird  and  a  chicken.  Then 
he  showed  Yamauchi  some  drawings  for  more  elaborate  toys — a 
whimsical  clock  for  an  amusement  park;  a  swing  within  a  seesaw 
on  which  three  children  could  play  at  once. 

Yamauchi  saw  ingenuity  and  resourcefulness  in  the  work,  and  he 
hired  Miyamoto  to  be  the  company's  first  staff  artist,  even  though 
the  company  had  no  specific  need  for  one  at  the  time.  Miyamoto 
was  assigned  to  be  an  apprentice  in  the  planning  department. 

When  Yamauchi  called  Miyamoto  into  his  office  in  1980  the 
young  man  looked  down  at  his  hands,  his  long  fingers  folded  on  the 
smooth  table  in  front  of  him.  He  listened  intently  as  Yamauchi  told 


I  .    MARIO 


him  that  he  was  looking  for  a  video  game.  Miyamoto  had  played 
many  video  games  at  college  in  Kanazawa.  He  loved  them.  In 
video  games,  cartoons  came  to  life. 

He  boldly  told  the  Nintendo  chairman  that  he  would  enjoy  cre- 
ating a  game.  However,  he  said,  the  shoot-'em-up  and  tennis-like 
games  that  were  in  the  arcades  at  that  time  were  unimaginative, 
simply  uninteresting  to  many  people.  He  had  always  wondered  why 
video  games  were  not  treated  more  like  books  or  movies.  Why 
couldn't  they  draw  on  the  great  stories:  some  of  his  favorite  leg- 
ends, fairy  tales,  and  fiction— King  Kong,  Jason  and  the  Argonauts, 
even  Macbeth! 

Nodding  impatiently,  Yamauchi  rushed  to  the  point:  A  Nin- 
tendo coin-operated  video  game  called  "Radarscope"  was  a  disas- 
ter. There  was  no  one  else  available  to  come  up  with  a  new  game 
design.  Miyamoto  had  to  try  to  convert  "Radarscope''  to  some- 
thing that  would  sell.  Yokoi  would  oversee  the  project,  but 
Miyamoto  was  on  his  own. 

After  consulting  with  the  R&D  1  chief,  Miyamoto  returned  to 
his  desk  with  the  schematic  drawings  of  "Radarscope,"  which  he 
found  simplistic  and  banal.  Enemy  planes  approached  and  players 
had  to  shoot  them  down.  Miyamoto  threw  it  away.  He  asked  ques- 
tions of  technicians  about  the  kinds  of  movements  characters  could 
make,  the  possibilities  for  different-size  characters,  and  the  varia- 
tions of  action  and  reaction  that  were  possible.  Nintendo  was  ne- 
gotiating with  King  Features  for  the  rights  to  use  the  Popeye  the 
Sailor  Man  comic  as  a  video  game,  and  Miyamoto  was  told  he 
could  work  with  those  characters.  The  Popeye  license  from  King 
Features  fell  through  (although  the  license  was  later  renegotiated 
and  the  Popeye  game  was  made),  so  he  tried  other  ideas. 

He  thought  about  Beauty  and  the  Beast,  but  simplified  the  story. 
He  came  up  with  his  own  beast,  a  King  Kong-like  ape,  a  humorous 
bad  guy,  "nothing  too  evil  or  repulsive,"  Miyamoto  recalls.  The 
ape  would  be  the  pet  of  the  main  character,  "a  funny,  hang-loose 
kind  of  guy"  who  was  not  especially  nice  to  the  gorilla.  "It  was 
humiliating!  How  miserable  it  was  to  belong  to  such  a  mean,  small 
man!"  says  Miyamoto.  At  his  first  opportunity,  the  gorilla  escaped 
and  kidnapped  the  guy's  beautiful  girlfriend. 


GAME    OVER 


The  gorilla  didn't  take  the  woman  to  hurt  her— an  important 
point  in  Miyamoto's  mind— but  to  get  back  at  the  little  man.  The 
man,  of  course,  then  had  to  try  to  save  the  girl. 

Miyamoto  wanted  the  main  character  to  be  goofy  and  awkward. 
He  chose  an  ordinary  carpenter,  neither  handsome  nor  heroic.  He 
wanted  him  to  be  Walter  Mittyesque,  someone  anyone  could  relate 
to.  On  a  large  sketch  pad  he  drew  a  nose.  "Having  a  nose  or  not 
having  a  nose  is  completely  different,"  he  says.  "Noses  say  a  great 
deal."  The  nose  Miyamoto  created  was  a  distinctive  bulbous  orb 
made  even  more  noticeable  because  of  the  exaggerated  bushy 
mustache  beneath  it.  From  one  of  his  old  notebooks  filled  with 
characters,  he  chose  a  pair  of  large,  pathetic  eyes. 

The  engineers  had  taught  Miyamoto  that  it  was  important  to 
distinguish  the  body  so  it  would  be  visible  on  a  video-game  screen. 
Therefore  he  clothed  his  chubby  character  in  bright-colored  car- 
penter's overalls.  In  order  to  make  the  movement  obvious  in  the 
simple  animation  of  video  games,  it  was  important  that  characters' 
arms  moved,  so  he  drew  stocky  arms  that  swung  back  and  forth. 
The  engineers  said  it  was  difficult  to  accurately  represent  hair  in  a 
video  game  because  of  inertia:  when  a  character  fell,  logically  his 
hair  would  have  to  fly  up.  To  avoid  the  problem,  Miyamoto  added  a 
red  cap.  "Also,"  he  adds,  "I  cannot  come  up  with  hairstyles  so 
good." 

Many  of  his  ideas  for  the  game  were  rejected  by  Yokoi; 
Miyamoto's  characters  had  to  do  simpler  things  than  he  wanted 
them  to.  He  ended  up  having  the  carpenter  maneuvering  up  the 
unfinished  foundation  of  a  building  in  order  to  reach  the  gorilla, 
who  had  climbed  to  the  top  with  the  girl.  To  get  there  the  little  man 
ran  up  ramps,  climbed  ladders,  rode  conveyor  belts,  and  jumped 
on  elevators  while  trying  to  avoid  the  objects  the  gorilla  hurled  at 
him — cement  tubs,  barrels,  and  beams. 

Miyamoto  was  nearly  finished,  but  the  game  needed  background 
music.  He  wrote  it  himself,  on  an  electronic  keyboard  attached  to  a 
computer  and  stereo  cassette  deck.  When  the  game  was  complete, 
Miyamoto  had  to  name  it.  He  consulted  the  company's  export 
manager,  and  together  they  mulled  over  some  possibilities.  They 
decided  that  kong  would  be  understood  to  suggest  a  gorilla.  And 
since  this  fierce  but  cute  kong  was  donkey-stubborn  and  wily  (don- 


I  ,    MARIO 


key,  according  to  their  Japanese/English  dictionary,  was  the  trans- 
lation of  the  Japanese  word  for  stupid  or  goofy),  they  combined 
the  words  and  named  the  game  "Donkey  Kong." 

Later,  when  the  American  sales  managers  who  would  sell  the 
game  outside  Japan  heard  the  name,  they  looked  at  one  another  in 
disbelief,  thinking  Yamauchi  had  flipped.  "Donkey  HongV 
"Konkey  DongT  "Honkey  DongV  It  made  no  sense.  Games  that 
were  selling  had  titles  that  contained  words  such  as  mutilation, 
destroy,  assassinate,  annihilate.  When  they  played  "Donkey  Kong," 
they  were  even  more  horrified.  The  salesmen  were  used  to  battle 
games  with  space  invaders,  and  heroes  shooting  lasers  at  aliens. 
One  hated  "Donkey  Kong"  so  much  that  he  began  looking  for  a 
new  job. 

Yamauchi  heard  all  the  feedback  but  ignored  it.  "Donkey 
Kong,"  released  in  1981,  became  Nintendo's  first  super-smash  hit. 

When  Yokoi  later  needed  help  with  games  for  Game  &  Watch, 
Yamauchi  told  him  to  use  Miyamoto,  since  his  other  designers 
were  busy  with  their  own  projects.  "I  asked  him  to  do  creation  and 
I  would  supervise,"  Yokoi  says. 

The  computer  chips  that  were  affordable  and  tiny  enough  to  fit 
into  a  Game  &  Watch  could  store  few  characters  and  even  fewer 
movements,  so  Miyamoto  was  limited  to  telling  simplistic  stories. 
He  adapted  a  simpler  form  of  "Donkey  Kong"  for  Game  &  Watch, 
and  after  the  agreement  for  the  Popeye  license  was  hammered  out, 
he  made  a  mini  "Popeye  the  Sailor  Man"  game.  The  latter  game 
has  Popeye  attempting  to  save  Olive  Oyl  from  Brutus.  When 
Popeye  is  weakened  by  too  much  of  Brutus's  abuse,  he  gains 
strength  by  downing  cans  of  spinach.  Millions  of  "Donkey  Kong" 
and  "Popeye"  Game  &  Watches  were  sold. 

In  1984,  Miyamoto  was  again  summoned  to  the  chairman's  of- 
fice. Yamauchi  explained  that  he  needed  more  games,  this  time  for 
the  Famicom.  Miyamoto  was  to  head  up  a  new  division,  R&D  4. 
The  group,  Joho  Kaihatsu,  or  the  entertainment  division,  had  one 
assignment:  to  come  up  with  the  most  imaginative  video  games 
ever. 

The  decision  was  one  of  the  smartest  Yamauchi  would  ever 
make.  Miyamoto,  it  was  soon  apparent,  had  the  same  talent  for 


5D  GAME    OVER 

video  games  as  the  Beatles  had  for  popular  music.  It  is  impossible 
to  calculate  Miyamoto's  value  to  Nintendo,  and  it  is  not  unreason- 
able to  question  whether  Nintendo  would  have  succeeded  without 
him. 

After  meeting  with  Yamauchi,  Miyamoto  returned  to  his  desk. 
He  took  a  pencil  and  began  sketching  the  suspendered  hero  from 
"Donkey  Kong,"  who  had  been  given  the  name  Mario.  Someone 
had  mentioned  that  Mario  looked  more  like  a  plumber  than  a 
carpenter,  so  he  made  the  new  Mario  into  one.  Since  plumbers 
spend  their  time  working  on  pipes,  large,  radiant-green  sewer 
pipes  became  obstacles  and  doorways  to  secret  worlds  in  his  next 
game,  "Super  Mario  Bros." 

The  brother  Miyamoto  created  for  Mario  was  Luigi,  as  tall  and 
string-bean  thin  as  Mario  was  short  and  fat.  That  attribute,  as  well 
as  the  color  chosen  for  his  overalls  (green  to  Mario's  red),  was 
simply  to  distinguish  the  two  characters  on  the  fast-moving  game 
screen. 

"Super  Mario  Bros."  and  the  sequels  Miyamoto  designed  soon 
became  the  most  loved  video  games  ever.  The  "Mario"  games 
were  more  interesting  because  there  were  always  new  worlds  to 
conquer,  each  one  more  magnificent  than  the  last.  There  are  walk- 
ing plants,  fish  that  Dr.  Seuss  might  have  created,  dragons,  ser- 
pents, flying  turtles,  fire-spitting  daisies,  and  angel  wings  upon 
which  Mario  and  Luigi  can  hitch  a  ride. 

Humor  was  subtly  introduced  into  the  adventure.  Miyamoto's 
mind  bent  around  corners;  players'  minds  follow,  delighted.  Even- 
tually they  figure  out  that  the  princess  has  to  ride  atop  a  ladybug  if 
she  is  going  to  get  to  the  boss  of  one  level  in  "Super  Mario  Bros. 
2."  (The  ladybug  looks  up  her  skirt  as  they  head  there.)  The 
miniboss  of  that  world— the  chief  bad  guy— spits  out  lethal  eggs 
larger  than  his  head.  In  one  sequel  to  "Super  Mario  Bros.,"  players 
have  to  figure  out  how  to  get  through  a  seemingly  unreachable 
door.  Mario  has  to  remove  some  of  the  coins  that  are  floating  in 
front  of  the  door  and  take  them  back  to  another  room  to  trip  a 
"switch  block"  that  changes  the  coins  into  stones.  The  stones  can 
then  be  used  as  steps  up  to  the  door.  Kids  spend  hours  compul- 
sively trying  to  figure  it  out. 

Adults  enjoy  Mario  too.  They  respond,  Miyamoto  feels,  because 


I  ,    MARIO  5  1 


the  games  bring  them  back  to  their  childhoods.  "It  is  a  trigger  to 
again  become  primitive,  primal,  as  a  way  of  thinking  and  remem- 
bering," Miyamoto  says.  "An  adult  is  a  child  who  has  more  ethics 
and  morals.  That's  all.  When  I  am  a  child,  creating,  I  am  not 
creating  a  game.  I  am  in  the  game.  The  game  is  not  for  children,  it 
is  for  me.  It  is  for  the  adult  that  still  has  a  character  of  a  child." 

Miyamoto  borrowed  freely  from  folklore,  literature,  and  pop 
culture— warp  zones  from  Star  Trek,  empowering  mushrooms  from 
Alice  in  Wonderland—but  his  most  captivating  ideas  came  from  his 
unique  way  of  experiencing  the  world  and  from  his  memories. 
When  Mario  jumps  up  in  space  at  certain  locations,  nothing  ought 
to  happen  because  nothing  is  there,  but  Mario  finds  secret,  power- 
ful mushrooms  and  invisible  doorways  to  new  worlds.  "I  exagger- 
ate what  I  experience  and  what  I  see,"  Miyamoto  says. 

In  the  "Mario"  games  and  in  some  of  Miyamoto's  other  popular 
games,  such  as  "The  Legend  of  Zelda"  and  its  sequel,  part  of  the 
adventure  is  wandering  into  new  places  without  a  map.  "When  I 
was  a  child,  I  went  hiking  and  found  a  lake,"  he  says.  "It  was  quite 
a  surprise  for  me  to  stumble  upon  it.  When  I  traveled  around  the 
country  without  a  map,  trying  to  find  my  way,  stumbling  on  amaz- 
ing things  as  I  went,  I  realized  how  it  felt  to  go  on  an  adventure  like 
this."  In  the  games,  it  often  is  quite  a  surprise  to  come  upon  a  lake 
amid  a  forest,  a  rocket  ship  hidden  beneath  the  sands  of  a  desert. 

"When  I  went  to  the  university  at  Kanazawa,  it  was  a  totally 
strange  city  for  me,"  Miyamoto  says.  "I  liked  walking  very  much, 
and  whenever  I  did,  something  would  happen.  I  would  pass 
through  a  tunnel  and  the  scene  was  quite  changed  when  I  came 
out."  TUnnels  in  his  games  are  doorways  to  unexpected  things.  At 
the  other  end  of  a  tunnel  the  fog  may  be  so  thick  that  it  is  impossi- 
ble to  see  what  is  ahead.  In  order  to  explore  the  new  place,  the 
player  must  return  through  the  tunnel  to  search  for  a  hidden  torch. 
Armed  with  the  torch,  the  player  is  able  to  go  back  through  the 
tunnel  and  face  what  is  hidden  in  the  fog.  In  "Super  Mario  Bros.  3" 
and  "Super  Mario  World,"  Mario  can  fly.  However,  as  in 
Miyamoto's  (and  many  people's)  dreams,  he  often  cannot  fly  high 
enough  or  long  enough  before  he  comes  crashing  down  to  earth. 

There  are  often  great  risks  attached  to  exploring  the  worlds  in 
Miyamoto's  games.  "I  was  living  in  an  apartment  in  Kyoto,  and 


52  GAME    OVER 


nearby  was  a  building  that  had  a  small  manhole  cover  mounted  in 
the  wall,"  Miyamoto  remembers.  "I  walked  by  it  every  day  and  I 
noticed  it.  I  wondered,  Why  is  a  manhole  on  the  wall?  Where  does 
it  lead?"  Miyamoto  never  found  out,  but  in  "Super  Mario  Bros.," 
when  the  player  encounters  a  manhole,  he  can  choose  to  do  what 
Miyamoto  never  did:  open  it  and  go  inside.  To  do  so  is  worthwhile. 
Miyamoto  as  a  child  had  worked  up  the  courage  to  go  beyond 
the  periphery  of  the  forbidding  cave  he  had  discovered.  "The 
spirit,  the  state  of  mind  of  a  kid  when  he  enters  a  cave  alone  must 
be  realized  in  the  game,"  he  says.  "Going  in,  he  must  feel  the  cold 
air  around  him.  He  must  discover  a  branch  off  to  one  side  and 
decide  whether  to  explore  it  or  not.  Sometimes  he  loses  his  way." 
Not  just  the  experiences  but  the  feelings  connected  to  those  events 
were  essential  to  make  the  game  meaningful.  "If  you  go  to  the  cave 
now,  as  an  adult,  it  might  be  silly,  trivial,  a  small  cave,"  Miyamoto 
says.  "But  as  a  child,  in  spite  of  being  banned  to  go,  you  could  not 
resist  the  temptation.  It  was  not  a  small  moment  then." 

In  Sonebe,  Miyamoto  had  once  climbed  a  tree  and  gotten  high 
enough  to  see  far-off  mountains  before  he  realized  that  he  was 
stuck;  there  was  no  way  he  could  get  down.  Super  Mario  gets 
himself  into  similar  fixes  all  the  time.  Once  while  fishing  when  he 
was  a  young  boy,  Miyamoto  reeled  in  a  bony,  grotesque  little  fish 
with  snapping  jaws.  Mario  encounters  the  fish  that  Miyamoto  as  a 
child  imagined  he  had  hooked:  a  monstrous  creature  that  would 
happily  devour  him. 

The  memory  of  being  lost  amid  the  maze  of  sliding  doors  in  his 
family's  home  in  Sonebe  was  re-created  in  the  labyrinths  of  the 
"Zelda"  games,  while  in  the  Mario  series  Miyamoto  made  safe 
places  that  felt  like  the  haven  of  his  parents'  attic.  The  dog  that  had 
terrorized  him  when  he  was  a  child  attacks  Mario.  "I  am  especially 
proud  of  the  dastardly,  repulsive  characters,"  he  says.  Miyamoto's 
dream  was  to  make  games  that  created  worlds  in  which  game 
characters  could  be  more  like  players'  companions,  seemingly  in- 
dependent. "Perhaps  they  can  even  be  ourselves  at  other  times  in 
our  lives,"  he  explains  obliquely. 

Older  and  more  sophisticated  players  often  miss  much  of  the 
magic  in  the  games.  Young  children,  who  do  more  leisurely  explor- 
ing, and  quiet  and  thoughtful  children,  who  are  more  contempla- 


I,    MARIO  53 

tive,  have  a  better  chance  of  finding  hidden  secrets  than  the  kids 
who  blast  through,  charging  toward  the  goal.  "The  players  must  be 
thinking,  'Well,  I  don't  see  anything  here,  but  it  can  be,  it's  possi- 
ble.' Then  the  player  is  curious  enough  to  visit  that  place.  When  he 
finds  something  he  never  expected,  he  feels,  'Ah,  I  did  it.  I  made 
it.'  It's  a  great  kind  of  satisfaction." 

The  most  wondrous  surprises  are  timed  to  occur  at  intervals  that 
keep  things  hopping.  It  is  worth  going  forward  because  something 
good  is  waiting  around  the  next  corner,  or  in  the  next  world.  Some 
of  the  secrets  are  so  well  hidden  that  it  is  a  miracle  kids  find  them 
at  all.  Each  level  of  each  game  ends  with  a  flagpole,  but  a  secret 
whistle  in  "Super  Mario  3"  is  hidden  beyond  and  above  the  flag- 
pole— in  a  place  that  seems  to  be  outside  the  game,  or  at  least 
outside  the  part  of  the  game  that  can  be  seen  on  a  television 
screen.  It  is  as  if  Mario  has  to  fly  out  of  the  television  set  for  a 
while  until  he  reaches  the  entrance  to  a  secret  room.  Who  would 
ever  think  of  trying  it?  Those  who  do  are  amply  rewarded.  The 
whistle  gives  Mario  the  power  to  travel  to  any  world  in  the  game  at 
any  time. 

Many  of  Miyamoto's  subsequent  games  not  only  had  the  same 
characters  and  roughly  the  same  goals,  but  built  on  the  skills  that 
were  learned  in  the  preceding  games.  There  were  many  new  lands 
and  new  tricks,  and  with  them  the  sense  of  accomplishing  new 
things,  yet  there  was  also  the  comfort  of  not  having  to  learn  a  game 
from  scratch. 

At  Nintendo,  Miyamoto's  stature  increased.  After  being  made 
the  director  of  his  first  games,  he  earned  the  title  of  producer.  It 
meant  a  great  deal  to  him:  he  had  the  same  title  as  his  idol,  George 
Lucas  (Raiders  of  the  Lost  Ark  was  Miyamoto's  favorite  movie). 
Now,  instead  of  working  on  one  game  at  a  time,  he  oversaw  the 
production  of  several,  each  budgeted  at  more  than  $1  million. 
From  six  to  twenty  people  worked  on  each  game  for  a  period  of 
twelve  to  eighteen  months. 

Technology  eventually  progressed  to  make  some  of  the  produc- 
tion stages  easier.  Originally  Miyamoto  had  to  paint  each  charac- 
ter. The  colors  in  the  painting  were  given  numbers  and  the 
numbers  were  inputted  into  a  computer,  dot  by  dot.  He  showed 


54  GAM  E    O  VER 


programmers  not  only  how  the  character  looked  but  how  it  moved 
and  what  special  traits  it  had  (a  bee,  when  hit,  lost  its  wings  but 
continued  to  stalk  Mario;  boats  made  out  of  skulls  sank  into  a  fire 
pit).  The  characters  and  their  movements  were  written,  line  by 
line,  as  instructions  in  a  computer  program. 

Tools  were  developed  to  eliminate  much  of  the  tedious  work. 
Diagrams  and  drawings  were  translated  into  computer  graphics 
with  technology  called  Character  Generator  Computer  Aided  De- 
sign (CGCAD).  "Character  banks"  of  images  were  stored  along 
with  the  codes  that  described  them.  Movement,  too,  was  now 
programmable  from  a  bank  of  choices. 

Miyamoto  was  a  terrible  manager  of  his  division;  he  needed  an 
assistant  to  keep  everything  and  everyone  organized.  Nonetheless, 
he  oversaw  all  aspects  of  the  creation  of  the  games.  He  wrote  the 
scripts  and  then  worked  with  editors,  artists,  and  programmers. 
When  a  game  was  nearly  completed,  he  spread  out  its  blueprint 
across  a  room  full  of  tables  that  had  been  pushed  together.  The 
blueprint  was  the  map  of  a  game's  pathways,  corridors,  rooms, 
secret  worlds,  trapdoors,  and  myriad  surprises.  Miyamoto  lived 
with  it  for  days,  traveling  through  the  game  in  his  mind.  As  he  went 
along,  he  determined  which  points  were  too  frustrating  or  too  easy. 
He  added  mushrooms  or  a  star  to  make  Mario  invincible.  He  made 
certain  that  the  moments  that  gave  the  greatest  delight — a  dino- 
saur that  hatched  from  an  egg,  a  feather  that  let  Mario  fly — came 
at  sufficiently  frequent  intervals. 

When  he  had  edited  a  game  to  his  satisfaction,  Miyamoto  went 
back  to  his  director  and  technicians  and  had  them  incorporate  his 
revisions.  They  worked  for  many  days  and  nights  on  the  changes, 
testing  idea  after  idea,  until  Miyamoto  was  happy  with  the  pacing. 

When  the  game  was  ready,  it  was  scored.  Music  was  just  as 
important  for  a  game  as  for  a  movie:  the  same  world  could  seem 
scary  or  lighthearted,  depending  on  the  music. 

Miyamoto  worked  with  a  professional,  in-house  composer,  most 
often  with  a  brilliant  young  musician  named  Koji  Kondo,  who 
wrote  the  music  for  all  the  "Super  Mario"  games.  Kondo's  music 
became  so  popular  that  recordings  of  his  Nintendo  music  were 
successful  CDs  and  records.  (In  Tokyo,  a  symphony  performed 
Kondo's    "Mario"    music,    and    the    Jamaican    reggae    singer 


I,    MARIO  55 

Shinehead  borrowed  the  "Mario"  theme  for  the  chorus  of  a  rap 
song.) 

After  the  music  was  added  and  the  final  edit  completed, 
Miyamoto's  games  were  ready.  Kids  were  waiting.  Between  1985 
and  1991  he  produced  eight  "Mario"  games.  An  astounding  60  to 
70  million  were  sold — either  individually  or  packaged  with  hard- 
ware as  an  incentive  to  buy  Nintendo  systems — making  Miyamoto 
the  most  successful  game  designer  in  the  world.  One  designer 
suggests  it  is  because  he  is  left-handed.  Miyamoto  shrugs:  "I  think 
it  is  nothing  more  than  destiny." 

As  his  games'  popularity  grew,  Miyamoto  became  well  known  in 
Japan  and  beyond.  Westerners  who  made  the  pilgrimage  to  Kyoto 
to  meet  him  included  Paul  McCartney,  who,  during  a  Japanese 
tour,  said  he  wanted  to  see  Miyamoto,  not  Mount  Fuji.  As  a  fan  of 
the  Beatles,  especially  Abbey  Road,  Miyamoto  was  thrilled,  al- 
though he  was  never  quite  able  to  fathom  the  attention  he  re- 
ceived. 

Meanwhile,  Miyamoto  had  met  a  woman  named  Yasuko,  who 
worked  in  Nintendo's  general  administration  department.  They 
dated  and  soon  married.  He  had  been  living  in  a  nearby  Nintendo 
dormitory,  and  he  and  Yasuko  moved  into  a  small  house  near 
Nintendo's  office.  From  there  he  walked  or  rode  a  bicycle  to  work. 
Yasuko  stopped  working  when  the  first  of  their  two  babies  was 
born.  The  family  would  walk  down  the  street  in  Kyoto,  and  his 
fans,  who  reverently  call  him  Dr.  Miyamoto,  often  stopped  him  to 
pay  homage.  Miyamoto  didn't  change  much.  Even  when  he  was 
approaching  forty  and  started  cutting  his  hair  shorter  (although  no 
one  would  ever  call  it  neat),  he  remained  unassuming  and  shy.  His 
mind  never  stopped  wandering  to  new  places — places  that  were  re- 
created in  his  newest  games. 

In  spite  of  a  string  of  hits  made  by  Miyamoto  and  by  the  other 
R&D  groups,  Yamauchi  still  was  unable  to  meet  the  demand  for 
games.  Retailers  were  turning  away  hordes  of  customers,  which 
distressed  them.  Yamauchi  himself  feared  that  customers  who 
couldn't  get  enough  games  would  move  on  to  other  forms  of  enter- 
tainment, perhaps  a  competitor's  video  game  system.  How,  he 
wondered,  could  he  increase  the  number  of  games  available? 


5B  GAME    OVER " 

Many  companies,  mostly  producers  of  video-arcade  or  floppy-disk 
computer  games,  had  approached  him,  but  Yamauchi  hadn't 
wanted  to  relinquish  any  control  over  the  games.  If  games  of  poor 
quality  were  released,  his  customers  would  become  disappointed 
with  the  Famicom.  But  the  real  reason  he  didn't  want  other  com- 
panies to  produce  games  for  his  machine  was  that  they  would 
make  piles  of  money,  and  Yamauchi  wanted  it  all  for  Nintendo. 


\. 


\     4 

IN5IDE  THE  \ 

MOTHER  BRAIN  ^ 


In  a  moss-carpeted  park  in  the  center  of  Kyoto's  business  district, 
amid  still-dormant  cherry  trees,  a  man  in  a  dark  suit  sipped  tea  and 
wrote  haiku.  The  business  day  seemed  to  have  thawed  away  into  a 
tranquil  pool  of  deliberation. 

Across  the  street,  in  lounges,  men  sat  before  tall  bottles  of  beer 
and  delicate  cups  filled  with  warmed  sake.  The  frenetic  day  shaken 
off  like  a  brittle  cocoon,  the  men  felt  replenished,  even  as  the  poet 
in  the  park  took  up  his  pen.  A  line  of  carbon-black  ink  assaulted 
the  white  parchment  before  him. 

Night  fell  and  an  electric  day  was  born  in  the  Las  Vegas  blinking 
of  the  pachinko  parlors  and  the  electric  street  lamps,  the  spotlights 
on  billboards,  and  the  neon  announcements  for  Coca-Cola  and 
Sony.  The  poet  vanished,  but  many  of  the  businessmen  ducked 
into  nearby  karaoke  bars,  where  pretty,  young  hostesses  giggled 
and  made  small  talk  and  poured  the  next  drink.  Men — by  day  stern 
and  forbidding — took  turns  climbing  up  on  stage,  where  they  took 


GAME    OVER 


hold  of  a  microphone  and  sang  love  songs  to  prerecorded  accom- 
paniment. 

Karaoke  had  become  a  favorite  after-work  ritual  for  many  busi- 
nessmen; they  took  to  it  nightly,  religiously.  An  important  manager 
of  a  high-technology  company  arrived  to  join  a  group  of  men  and 
was  introduced  not  by  his  position  in  the  company  but  by  his  dis- 
tinction as  the  number-one  singer  in  his  office. 

Across  the  river  that  divided  Kyoto,  it  was  quieter.  Light  ema- 
nated from  the  ribbon  of  windows  that  wound  around  the  Nin- 
tendo compound.  Inside,  no  one  sang.  Hiroshi  Yamauchi  had  no 
tolerance  for  karaoke. 

At  the  entrance  of  the  main  building  was  a  large  waiting  area 
that  had  all  the  intimacy  of  an  airport  terminal.  There  were  rows  of 
uncomfortable  molded-plastic  chairs  and  couches  and  Formica- 
topped  end  tables.  Behind  a  marble-topped  reception  desk  were 
women  in  powder-blue  skirts  and  smocks*  some  with  tiny  pillbox 
hats.  The  walls  were  devoid  of  all  decoration.  A  maze  of  hallways 
with  shiny  waxed  floors  lay  beyond  the  waiting  room.  Behind  one 
anonymous  door  was  Hiroshi  Yamauchi's  office,  called  by  one  em- 
ployee, "the  realm  of  the  Mother  Brain."  In  the  game  "Metroid" 
the  Mother  Brain  was  the  pulsing,  laser-spewing  creature  that 
hurled  bolts  of  crimson  electricity  and  survived  by  sucking  the 
universe  of  all  of  its  energy. 

Inside  Nintendo's  Mother  Brain  was  a  substantial  wooden  desk 
that  faced  a  small  coffee  table  with  couches  on  either  side.  The 
carpet  was  industrial  gray,  speckled  with  beige.  There  was  a  small 
television  on  a  shelf. 

A  little  after  nine  in  the  evening,  Yamauchi  concluded  his  final 
meeting  of  the  day.  Emerging  from  a  conference  room,  he  padded 
down  the  hallway  in  rubber  sandals,  his  tie  loosened,  and  headed 
back  to  the  seclusion  of  his  office. 

Employees  filed  out — a  succession  of  men  and  women  wearing 
Nintendo-blue  (hospital-blue)  smocks  or  jackets,  or  else  white 
shirts  with  dark  business  suits.  They  headed  to  their  cars  or  to  the 
train  or  simply  walked  down  the  road  to  their  nearby  corporate 
living  quarters. 

Gunpei  Yokoi  and  Hiroshi  Imanishi  were  huddled  together  in  a 


INSIDE   THE    MOTHER    BR  AIN  59 


conference.  Some  of  Sigeru  Miyamoto's  R&D  team,  in  the  corner 
of  a  huge  room  under  parallel  rows  of  fluorescent  lights,  were 
playing  a  test  version  of  a  new  game,  searching  for  an  irksome  bug 
that  had  been  detected  earlier  that  day.  (A  bug  is  a  flaw  in  a 
program  that  causes  malfunctions.)  From  a  cubicle  in  one  corner 
of  a  large  open  office,  the  tearful  voice  of  a  female  Japanese  pop 
singer  crooned  desperately  to  the  man  who  had  betrayed  her. 

There  were  no  sounds  or  voices  along  the  corridor  that  led  to 
the  Mother  Brain.  Inside,  another  man  had  joined  Yamauchi.  They 
greeted  each  other  and  sat  on  the  couches  on  opposite  sides  of  the 
low  table.  Before  leaving  for  the  day,  Reiko  Wakimoto,  Yamauchi's 
secretary,  delivered  a  silver  tray  upon  which  was  a  bottle  of  fine 
Scotch,  two  heavy  crystal  tumblers,  and  a  small  bucket  filled  with 
ice.  She  poured  drinks  for  the  two  men  before  departing,  bowing 
respectfully. 

Yamauchi's  hair  had  thinned,  but  he  still  combed  it  straight 
back.  The  silver  was  more  pronounced,  more  distinguished.  As  he 
spoke,  he  rubbed  his  hands  on  the  wooden  arms  of  his  chair.  He 
sat  with  his  head  jutting  forward,  which  made  it  seem  out  of  pro- 
portion to  his  small  frame.  He  talked  through  clenched  teeth,  his 
chin  taut  and  drawn. 

"Your  move,"  he  said. 

Yamauchi  always  wore  dark  suits  with  plum  or  navy  ties  and 
yellow-tinted  glasses  that  gave  his  face  a  pronounced  pallor.  With- 
out the  jacket  and  with  his  tie  removed,  he  seemed  frail,  his  body 
shrunken  in  the  oversized  armchair.  He  leaned  his  head  back  and 
narrowed  his  eyes. 

The  two  men  clasped  their  drinks — Yamauchi's  companion 
shook  his  in  a  circling  motion;  ice  skated  around  the  glass — and 
stared  at  the  square  board  resting  on  the  table  between  them.  The 
board,  made  of  blond  wood,  was  covered  with  a  grid  of  thin  black 
lines,  nineteen  vertical  and  nineteen  horizontal.  The  361  intersec- 
tions on  the  board  represented  the  world.  Smooth  white  "stones" 
(made  of  clamshells)  and  black  ones  (made  of  slate)  were  posi- 
tioned strategically  on  the  board.  They  represented  the  two  forces 
in  conflict,  both  trying  to  control  the  game  board — the  universe. 

The  game  they  played,  go,  is  a  Japanese  game  sometimes  com- 


GAME    OVER 


pared  to  chess,  although  it  is  really  the  antithesis.  The  object  in 
chess  is  to  whittle  away  at  one's  opponent's  forces  until  the  playing 
field  is  desolate  and  the  king  is  hunted  down.  Go,  on  the  other 
hand,  is  about  building  and  balance — balancing  aggression  and 
caution,  influence  and  restraint,  friendliness  and  disharmony.  The 
rules  are  much  simpler  than  chess,  yet  the  game  is  more  complex. 
David  Weimer,  a  professor  at  the  University  of  Rochester  who 
teaches  go,  says  that  Western  games  such  as  chess  take  "the 
Clausewitzean  view  of  conflict — go  for  the  capital  and  destroy  ev- 
erything along  the  way."  But  in  go  "you  have  to  be  patient;  early 
moves  may  not  have  full  consequences  until  much  later." 

Go  is  a  difficult  game  to  learn  to  play  and  takes  a  lifetime  to 
master.  A  neophyte  go  player  is  rated  as  a  Q  10.  As  he  progresses, 
he  works  his  way  up  through  the  Q  levels,  eventually  making  first 
Q.  That  is  followed  by  first  dan,  which  is  the  equivalent  of  a  black 
belt  in  judo  or  karate.  A  player  then  goes  up  the  scale  of  dan — 
second,  third,  fourth  dan,  and  so  on  until  tenth  dan.  Hiroshi 
Yamauchi  was  sixth  dan,  a  sixth-degree  black  belt. 

Yamauchi's  opponent  was  one  of  Nintendo's  licensees — his 
company  developed  and  sold  approved  Nintendo  games.  Licensees 
were  in  a  precarious  position,  for  Nintendo  gave  away  little  and 
one  had  to  play  by  Yamauchi's  rules. 

Because  of  this,  Yamauchi's  opponent  felt  it  was  prudent  to 
learn  all  he  could  about  the  Nintendo  chairman.  An  astute  man 
could  learn  volumes  about  an  opponent  by  his  go  game. 
"Yamauchi's  game  is  obvious  and  clear.  Nothing  is  hidden,"  the 
man  observed.  "It  is  very  forceful  when  it  has  to  be,  yet  there  is 
give  and  take.  But  when  he  becomes  strong,  he  does  not  look  back. 
He  takes  advantage  of  weakness.  He  knows  far  in  advance  what 
will  happen  and  he  never  loses  his  composure." 

When  Yamauchi  decided  to  allow  outside  companies  to  create 
games  for  the  Famicom,  he  initiated  a  licensing  program.  To  be- 
come a  Nintendo  licensee,  a  company  had  to  agree  to  unprece- 
dented restrictions.  Companies  that  were  "invited"  to  become 
licensees  were  appalled  at  the  terms  of  the  agreement,  but  Nin- 
tendo's position  was  immovable.  No  one  was  forced  to  become  a 
licensee,  Yamauchi  noted,  and  in  spite  of  the  complaints,  compa- 


INSIDE   THE    MOTHER    BRAIN 


nies  signed  up,  because  millions  of  customers  were  clamoring  for 
games.  The  vastness  of  the  Famicom  market  was  enough  to  silence 
the  complaints,  and  many  companies  made  fortunes.  Nintendo,  of 
course,  made  the  biggest  fortune  of  all. 

T\vo  companies,  Namco,  the  reigning  arcade-game  company, 
and  Hudson,  a  computer-software  maker,  became  the  first  two 
licensees.  Hudson  released  a  game  called  "Roadrunner."  Before 
that,  Hudson  had  sold  a  maximum  of  10,000  copies  of  any  com- 
puter game.  "Roadrunner"  sold  1  million  units  and  was  responsi- 
ble for  the  quadrupling  of  Hudson's  annual  profits  in  1984.  Namco 
sold  1.5  million  copies  of  a  game  called  "Xevious."  A  new  Namco 
building  was  nicknamed  the  Xevious  Building  because  the  game 
had  paid  for  its  construction  costs. 

Another  company,  Taito,  founded  in  the  1950s  as  a  jukebox 
manufacturer,  was  a  large  pinball-machine  and  coin-operated 
video-game  company.  Taito  had  made  the  game  behind  a  surge  in 
interest  in  video  arcades.  In  "Space  Invaders,"  rows  of  aliens  de- 
scended in  formation,  unremittingly,  on  the  black-and-white  TV 
screen  of  a  large  console.  The  player  controlled  a  mobile  cannon  at 
the  bottom  of  the  screen  that  fired  shots  at  the  invaders,  which 
came  faster  and  faster  until  they  were  entirely  destroyed  or  their 
opponent — the  player — succumbed. 

While  most  companies  sold  arcade-game  machines  to  distribu- 
tors or  licensees,  Tkito,  in  Japan,  also  owned  and  operated  more 
than  100,000  coin-op  games  in  arcades,  which  meant  there  was  no 
middleman  participating  in  "Space  Invaders"  earnings.  Taito  raked 
in  so  much  cash  that  the  company  was  in  a  strong  position  to 
diversify,  and  its  chairman  signed  an  agreement  with  Hiroshi 
Yamauchi.  Taito  and  the  other  initial  licensees  (Konami,  Capcom, 
Bandai,  Namco,  and  Hudson)  had  the  right  to  produce  their  own 
cartridges  for  the  Famicom,  a  right  no  future  developers  or  pro- 
ducers would  get  for  many  years.  They  paid  Nintendo  a  large 
royalty  on  every  game  cartridge  they  sold  (about  20  percent). 

Konami,  which  was  based  in  Kobe,  had  been  successful  at  selling 
computer  games,  dedicated  hand-held  games  (plastic  Walkman- 
size  games  that  had  been  programmed  to  be  "dedicated"  to  play 
one  game  only),  and  coin-op  games,  but  it  grew  enormously  as  a 


GAME    OVER 


result  of  its  Nintendo  license.  In  five  years,  its  earnings  shot  up 
from  $10  million  in  1987  to  $300  million  in  1991;  there  was  a  2,500 
percent  increase  in  sales  between  1989  and  1991  alone. 

After  the  six  licensees  had  begun  selling  games,  Hiroshi 
Yamauchi  realized  that  he  had  not  only  given  away  his  ability  to 
control  the  quality  of  cartridges  (some  defective  games  had 
reached  the  market),  but  some  potential  profits  as  well,  because  he 
had  allowed  the  companies  to  manufacture  their  own  games. 
Henceforth  Nintendo  would  be  the  sole  manufacturer  of  games  for 
the  Famicom.  The  licensees  would  develop  them  and  then  place  an 
order  with  Nintendo  for  a  minimum  of  10,000  cartridges.  The 
terms  were  elegantly  simple:  Nintendo  insisted  on  cash,  in  ad- 
vance. 

In  the  new  contract,  Nintendo  was  paid  about  2,000  yen  per 
cartridge  by  the  licensees,  about  twice  what  it  took  to  produce 
them.  Whether  a  company  ordered  10,000  or  500,000  cartridges, 
Nintendo  profited  handsomely,  even  if  the  games  didn't  sell. 

Licensees  might  have  operated  with  caution  and  placed  small 
10,000-piece  orders,  but  those  could  be  as  risky  as  large  orders. 
Companies  were  in  business  for  hits,  "grand  slams,"  as  one  game 
maker  called  them.  If  a  company  cautiously  ordered  a  small  num- 
ber of  games  and  found  it  had  a  big  seller  on  its  hands,  Nintendo 
could  take  its  time  filling  the  order.  The  game's  popularity  might 
pass  by  the  time  the  games  were  back  in  the  stores.  Companies, 
particularly  small  licensees  without  deep  cash  reserves,  had  to  risk 
perilous  amounts  of  capital  on  large  orders  if  they  wanted  to  gam- 
ble on  big  successes.  They  shouldered  all  the  risk  while  Nintendo 
collected  obscene  profits,  which  came  with  almost  no  additional 
investment.  (Nintendo  subcontracted  licensees'  orders  to  outside 
manufacturers.) 

It  was  common  for  a  game  to  sell  300,000  copies,  and  the  num- 
ber was  often  three  or  four  times  that  many.  At  the  low  end  of  such 
sales  figures,  Nintendo  collected  $2.2  million.  For  a  million-seller, 
Nintendo's  take  was  over  $7  million.  It  was  easy  money,  risk-free, 
and  the  licensing  agreements  accounted  for  a  growing  proportion 
of  Nintendo's  profits  as  more  companies  signed  on.  In  1985  there 
were  seventeen  licensees.  A  year  later  there  were  thirty.  By  1988 
there  were  fifty. 


INSIDE    THE    MOTHER    BR  AIN  B3 


Sitting  across  the  table  from  Hiroshi  Yamauchi,  staring  fixedly  at 
the  smooth  stones  on  the  go  board,  Henk  Rogers  broke  into  a  wide 
smile.  He  had  found  a  hole  in  Yamauchi's  defenses  and  had  placed 
a  stone  on  the  board  in  position  for  an  attack. 

Yamauchi's  expression  remained  impassive.  He  looked  up  for  a 
moment,  eyeing  Rogers,  a  generation  younger  and  as  different  a 
man  as  imaginable  from  himself.  Rogers  had  a  wolfish,  pointed 
beard  and  longish  ebony  hair  parted  in  the  middle  and  swept  back 
over  his  forehead.  Above  coffee-colored  eyes  hung  lavish  cunei- 
form eyebrows. 

Both  men  drank  the  Scotch  from  their  glasses  and  examined  the 
board  in  front  of  them.  Rogers,  as  a  three-daw  player,  three  levels 
below  Yamauchi,  enjoyed  a  handicap  of  three.  He  thus  got  to  place 
three  stones  at  the  start  of  the  game,  the  equivalent  of  three  free 
moves.  This  meant  that  Yamauchi  could  win  only  if  Rogers  made 
three  mistakes. 

Rogers  now  made  his  third  mistake.  Yamauchi  had  seen  in  his 
opponent  a  broad  streak  of  recklessness,  so  the  move  came  as  no 
surprise.  He  took  advantage  of  the  error  and  added  a  stone  that 
determined  the  remainder  of  the  game.  Rogers  was  helpless. 

The  younger  man  shrugged.  "Good  move,"  he  whispered.  There 
was  nothing  he  could  do  to  save  himself. 

Henk  Rogers  lived  with  his  parents  in  Amsterdam  for  eleven 
years  before  his  father's  gem  business  took  the  family  to  New  York 
City  in  1964.  After  Henk  graduated  from  high  school,  the  family 
moved  to  Oahu,  where  he  enrolled  at  the  University  of  Hawaii. 
Most  mornings,  before  class,  he  surfed  on  the  island's  northern 
beaches. 

Rogers  spent  most  of  his  time  on  the  U.H.  campus  in  the  com- 
puter-science building,  playing  games  on  terminals  connected  to 
mainframes.  Game  playing  led  to  programming.  "For  a  gamer, 
programming  is  the  ultimate  game,"  he  says. 

After  graduating,  he  found  a  job  in  California  at  a  software 
company  that  had  a  contract  with  the  U.S.  military.  After  a  sum- 
mer, he  quit.  "I  didn't  want  to  spend  my  life  finding  better  ways  to 
kill  people." 


GAME    OVER 


In  the  meantime,  Rogers's  family  had  moved  to  Japan,  and  he 
joined  them  in  1976.  He  lived  in  Yokohama,  a  Tokyo  suburb,  and 
studied  Japanese.  He  had  connections  that  could  have  landed  him 
a  job  at  one  of  the  major  Japanese  computer  companies,  but  he 
felt  that,  as  a  foreigner,  it  would  be  a  dead  end.  "The  fact  is,"  he 
says,  "if  you're  not  Japanese,  you're  not  going  to  be  president  of 
NEC.  It's  just  not  going  to  happen." 

He  taught  English  and  then  accepted  an  offer  to  work  with  his 
father.  The  gem  business  was  thriving.  The  Rogerses  bought  rough 
stones  and  had  them  cut  in  Bangkok  and  Hong  Kong.  They  sold 
the  finished  gems  throughout  Asia  and  in  a  shop  near  Tokyo.  Henk 
worked  in  the  family  business  for  seven  years.  He  also  learned  to 
play  go  from  his  father,  a  six-dan  player. 

Personal  computers  had  proliferated  by  then.  A  gamer  no  longer 
needed  access  to  a  mainframe  to  play  and  create  games.  Messing 
around  with  a  PC,  Rogers  created  an  electronic  version  of  "Dun- 
geons and  Dragons,"  the  popular  role-playing  game  that  was  an 
obsession  on  high  school  and  college  campuses  back  in  the  United 
States.  The  game,  "Black  Onyx,"  was,  he  believed,  his  ticket  to 
freedom.  He  planned  to  sell  it  for  a  small  fortune. 

Rogers  took  the  game  to  a  number  of  computer-software  com- 
panies until  he  found  one  that  was  interested.  He  shook  hands  on  a 
verbal  agreement  with  the  company's  president.  When  it  came 
time  to  collect  his  advance  and  sign  the  contract,  however,  the  man 
tried  to  pay  less  than  he  had  promised.  Computer  games  in  those 
days  were  often  created  by  struggling  college  students  or  unem- 
ployed hackers  who  were  ecstatic  if  someone  wanted  to  publish 
their  game;  they  commonly  signed  contracts  for  almost  nothing. 
Rogers,  however,  refused  to  sign,  even  when  the  publisher  threat- 
ened to  keep  Rogers  from  publishing  his  game  elsewhere. 

Rogers  decided  to  market  "Black  Onyx"  himself.  He  placed 
advertisements  in  computer  magazines  throughout  Japan  and,  his 
wife  manning  the  telephones,  waited  for  the  calls  to  pour  in.  There 
were  three  phone  calls  in  three  months. 

The  problem,  he  diagnosed,  was  that  there  was  no  understand- 
ing of  role-playing  games  in  Japan;  "Dungeons  and  Dragons"  was 
not  popular  there.  The  solution,  he  concluded,  was  to  educate 
Japanese  gamers. 


INSIDE   THE    MOTHER    BRAIN  65 

He  talked  his  way  into  the  editorial  offices  of  computer  maga- 
zines and  convinced  editors  and  writers  to  try  his  game.  He  set  it 
up  on  their  computers  as  they  watched  over  his  shoulder.  After 
calling  up  an  array  of  bodies  and  heads  on  the  computer  screen,  he 
told  the  players  to  choose  ones  that  looked  like  them,  and  he  typed 
in  their  names  below  the  figures  they  had  created.  The  characters, 
he  explained,  were  them.  The  essence  of  a  role-playing  game  was  to 
accept  that  premise.  The  player  was  not  watching  the  character;  he 
was  the  character. 

Rogers  was  nothing  if  not  enthusiastic,  and  his  enthusiasm  was 
contagious.  He  guided  the  editors  and  writers  into  the  first  of  his 
game's  dungeons,  where  they  were  shown  how  to  explore  and  fight. 
When  they  won  a  battle,  they  gained  experience  and  strength 
enough  to  venture  into  the  next  dungeon.  He  left  the  offices  with 
the  editors  and  writers  enraptured;  they  continued  playing  for 
weeks.  The  magazines  reviewed  "Black  Onyx,"  showering  it  with 
raves.  Rogers  sold  100,000  copies  in  1980. 

By  the  time  he  released  a  sequel  to  "Black  Onyx,"  Rogers  had 
formed  a  company,  Bullet-Proof  Software,  BPS.  It  was  a  frustrat- 
ing, uphill  struggle  to  get  BPS  games  into  software  shops.  Rogers 
spoke  Japanese  and  was  accessible  and  respectful,  but  he  was  a 
gaijin,  a  foreigner.  It  was  a  formidable  barrier,  but  he  learned  to 
use  it  to  his  advantage.  He  allowed  the  arrogance  he  encountered 
to  placate  business  adversaries  and  catch  them  off  guard.  "I 
walked  through  the  wall  as  if  it  didn't  exist,"  he  says. 

With  the  success  of  his  second  game,  "Fire  Crystal,"  Rogers 
expanded  BPS.  He  couldn't  create  all  the  games  himself,  so  he 
went  out  in  search  of  games  to  license.  The  Japanese  game  compa- 
nies were  the  ones  at  a  disadvantage  at  the  international  trade 
shows  where  designers  hawked  their  games.  Rogers  had  connec- 
tions around  the  globe,  spoke  several  languages,  and  had  a  re- 
markable ease  with  businessmen,  who  found  him  a  willful 
negotiator,  as  well  as  with  young  gamers,  who  realized  that  he  was 
one  of  them.  When  he  could  get  away  with  it,  Rogers  wore  colorful 
Hawaiian  shirts  in  place  of  drab  business  suits  and  bestowed  bear 
hugs  instead  of  handshakes.  From  the  moment  he  opened  his 
mouth  it  was  evident  that  he  loved  games.  It  led  to  licenses  from  all 
over  the  world. 


GAME    OVER 


Rogers  wanted  to  release  a  computer  go  game.  Although  there 
was  a  proliferation  of  chess  programs,  go  didn't  lend  itself  as  well 
to  programming.  In  chess  there  are  a  limited  number  of  good 
responses  to  any  move,  whereas  in  go  the  number  is  astronomical. 

Go  programs  frustrated  good  players.  Human  opponents 
learned  from  their  mistakes,  but  computers  made  the  same  moves 
over  and  over  again.  Artificial  intelligence — later  technology — 
would  give  computers  the  ability  to  analyze  a  game  and  "learn" 
from  its  mistakes,  but  even  the  best  go  programs  were  not  yet 
capable  of  highly  sophisticated  play. 

Rogers  decided  to  release  a  go  program  for  novice  players.  If 
nothing  else,  the  computer  was  a  tireless,  patient  teacher.  He 
searched  for  go  programs  around  the  world  and  finally  came  up 
with  one  he  considered  appropriate  for  beginners.  It  was  written  by 
a  man  who  had  won  the  world  computer  go  championship  in  Bei- 
jing, and  who  happened  to  be  from  Rogers's  native  Holland.  A 
deal  was  struck  and  BPS  released  the  game,  which  sold  modestly 
well. 

BPS  grew,  but  the  computer-game  business  was  shrinking.  The 
largest  number  of  people  playing  the  games  were  not  using  com- 
puters anymore;  they  were  using  Nintendo's  new  Famicom  video- 
game system.  People  who  owned  computers  might  buy  one  game  a 
year.  Famicom  owners  bought  many. 

Some  computer  games  could  be  converted  to  run  on  the 
Famicom,  which  was  designed  to  have  better  graphics  and  faster 
action  than  computers.  The  Famicom  wasn't  as  powerful  as 
computers,  however,  so  many  of  the  games  had  to  be  simplified. 
Yet  the  trade-off  was  worthwhile  because  of  the  size  of  the  mar- 
ket. By  1988,  there  were  ten  million  Famicom  systems  in  Japa- 
nese homes. 

Though  many  computer-game  companies  had  become  early 
Nintendo  licensees,  others  couldn't  afford  to.  For  an  en- 
trepreneurial company  as  small  as  BPS,  becoming  a  Nintendo  li- 
censee was  almost  impossible,  although  that  didn't  stop  Rogers. 

An  ordinary  attempt  to  reach  Hiroshi  Yamauchi  would  be  un- 
successful, Rogers  knew.  The  man  was  unavailable  to  all  but  his 
biggest  customers  and  suppliers,  and  they  saw  him  rarely.  They 
most  often  met  with  Nintendo  managers,  often  referred  to  as 


" INSIDE   THE    MOTHER    BRAIN  67 

"Yamauchi's  generals,"  who  operated  like  guard  dogs,  trained  to 
menace  and  intimidate. 

However,  Rogers  did  learn  something  about  Yamauchi  that 
might  give  him  an  entree.  Rogers  could  appeal  to  him  as  part  of 
the  elite  circle  of  men  who  played  go. 

In  a  letter,  written  on  the  stationery  of  his  American  office, 
Rogers  said  that  his  company  sold  the  best  go  computer  program  in 
the  world  and  that  he  was  interested  in  releasing  it  for  the 
Famicom.  He  said  he  was  in  Japan  for  only  a  few  days  and  he 
would  make  time  to  visit  Nintendo  if  Yamauchi  was  available. 

The  day  after  Rogers  messengered  the  letter  from  Yokohama  to 
Kyoto,  he  was  contacted  by  Yamauchi's  office  and  invited  to  a 
meeting.  Rogers  rushed  to  Kyoto  on  the  bullet  train  and  caught  a 
taxi  to  Nintendo  headquarters.  A  guard  directed  him  to  the  lobby, 
where  a  receptionist  told  him  to  have  a  seat.  An  electronic  version 
of  a  Beethoven  cantata  signaled  that  the  lunch  break  was  over. 
Reiko  Wakimoto  met  him  and  instructed  him  to  follow  her  to  the 
chairman's  office. 

Yamauchi,  sitting  behind  his  large  desk,  gave  a  quick  nod  when 
Rogers  bowed  respectfully.  He  did  not  rise  when  the  young  man 
approached  him  to  shake  hands  but  gestured  toward  one  of  the 
chairs  opposite  the  desk.  Wakimoto  placed  glasses  of  green  tea  in 
front  of  the  men. 

Yamauchi  listened  as  Rogers  talked  not  about  the  go  program  or 
BPS  but  video  games  in  general.  Rogers  sat  up  in  the  low-backed 
chair  and  spoke  passionately.  He  knew  what  was  hot  in  arcades 
and  he  theorized  why.  He  revealed  a  keen  understanding  of  the 
young  people  who  played  the  games.  Yamauchi  let  on  nothing,  but 
was  impressed  by  both  the  young  man's  insights  and  his  enthusi- 
asm. 

Rogers  finally  repeated  what  he  had  said  in  his  letter:  he  wanted 
to  create  a  go  game  for  the  Famicom.  To  do  so,  he  would  need 
more  than  just  a  license  to  work  with  Nintendo,  since  his  small 
company  didn't  have  the  capital  to  pay  for  cartridges.  He  asked 
Yamauchi  to  back  him. 

Without  fanfare,  Yamauchi  said  he  would  work  with  Rogers.  He 
could  spare  no  programmers,  only  cash.  Rogers  said  cash  would  be 
fine. 


GAME    OVER 


Yamauchi  asked  Rogers  how  much  money  he  needed.  Rogers 
had  calculated  how  much  it  would  cost  him  to  develop  the  game 
and  added  a  small  profit.  He  threw  out  the  figure.  Yamauchi  nod- 
ded. "Good,"  he  said.  "Done."  Yamauchi  had  been  so  quick  to 
agree  that  Rogers  wondered  if  he  had  asked  for  too  little. 

Before  Rogers  left  the  meeting,  he  challenged  Yamauchi  to  a 
game  of  go.  Yamauchi  nodded  his  acceptance.  The  game  would 
follow  their  next  meeting,  he  said.  He  would  schedule  it  at  the 
conclusion  of  a  workday. 

Rogers  needed  a  new  version  of  go  that  was  simpler  than  his 
computer  version.  He  contacted  a  programmer  in  England  who 
had  made  a  go  program  for  the  Commodore  64  computer,  which 
had  a  variation  of  the  same  central  processing  unit  as  the 
Famicom.  Rogers  bought  the  rights. 

By  the  time  it  was  ready,  Yamauchi  had  decided  that  the  market 
for  a  go  video  game  was  too  small.  The  whole  point  of  go  was  the 
serenity  of  play,  the  feel  of  the  stones,  the  patience,  and  he  felt  it 
was  incompatible  with  the  Famicom — not  many  people  would  want 
to  play  the  ancient  game  on  what  he  still  viewed  primarily  as  a  toy. 
Yamauchi  told  Rogers  he  could  keep  the  money,  but  that  he 
should  come  up  with  another  idea  for  a  Famicom  game. 

Henk  Rogers  had  too  much  invested  in  the  go  game  not  to  see  it 
released,  and  he  asked  Yamauchi  if  BPS  could  publish  it.  He  said 
he  would  pay  back  the  advance  if  Yamauchi  would  front  him  the 
manufacturing  costs. 

Yamauchi  liked  Rogers  enough  to  agree.  Nintendo  manufac- 
tured the  cartridges  and  sent  the  first  order  to  BPS  in  Yokohama. 
Rogers  brought  a  cartridge  with  him  on  his  next  visit  to  Nintendo, 
inserted  it  into  a  Famicom,  turned  on  the  television  monitor,  and 
invited  Yamauchi  to  sit  down  in  front  of  it.  Yamauchi  had  never 
played  a  Nintendo  game  before.  He  held  the  controller  awkwardly 
and  became  frustrated  as  he  tried  to  follow  Rogers's  instructions. 
He  put  down  the  controller  and  refused  to  try  again. 

Rogers's  go  game  sold  150,000  copies — unspectacular  for  a  Nin- 
tendo game,  but  a  huge  number  for  BPS.  Rogers  easily  paid 
Yamauchi  back  the  money  he  had  been  advanced  and  found  him- 
self in  a  particularly  enviable  position.  Not  only  did  his  company 


INSIDE   THE    MOTHER    BRAIN  69 

have  a  license  to  work  with  Nintendo,  but  he  had  something  even 
rarer:  a  coveted  relationship  with  NCL's  chairman. 

BPS  released  other  Famicom  games,  including  "Super  Black 
Onyx,"  a  newer  version  of  Rogers's  game.  BPS  thrived,  and  the 
relationship  Rogers  had  with  Nintendo  proved  valuable  to  both 
companies.  When  Nintendo,  years  later,  sent  an  emissary  to  the 
U.S.S.R.  to  negotiate  with  the  Soviets  for  the  rights  to  a  brilliant 
game  called  "Tetris,"  Rogers  was  the  man  the  company  dispatched. 

The  Famicom's  popularity  grew  as  licensees  released  their 
games.  Another  small  company  that  signed  on  was  Enix,  a  start-up 
formed  specifically  to  create  Nintendo  games.  Founded  with  a  cap- 
ital investment  of  5  million  yen,  the  company  attained  the  status  of 
video-game  giant  through  a  game  called  "Dragon  Quest"  and  its 
sequels.  The  original  "Dragon  Quest"  was  a  combination  of  two 
PC  games.  It  was  developed  by  a  team  of  game  designers,  pro- 
grammers, composers,  and  a  well-known  illustrator.  Because  Enix 
had  so  much  confidence  in  its  game,  it  put  all  its  start-up  money  on 
the  line  and  placed  an  order  for  760,000  cartridges. 

"Dragon  Quest"  was  released  in  February  1986.  The  Enix  team 
panicked  when  the  game  hardly  sold.  It  began  advertising  in 
Shukan  Shorten  Jump,  a  weekly  boys'  magazine  with  a  circulation 
of  4.5  million  copies.  The  magazine's  editors  agreed  to  publish  an 
article  about  the  role-playing  game's  lore  and  mythology.  It 
sparked  "Dragon  Quest"  sales;  a  groundswell  followed.  So  many 
players  called  and  wrote  in  with  questions  about  the  game  that  the 
magazine's  editors  decided  to  publish  an  ongoing  series  of  articles 
about  "Dragon  Quest."  Both  Enix  and  the  publisher  benefited: 
Enix  ordered  more  games  from  Nintendo — 1.4  million — and  the 
magazine's  circulation  skyrocketed.  Because  of  "Dragon  Quest" 
sales,  Enix's  management  that  year  gave  its  employees  a  bonus 
equivalent  to  twelve  months'  salary. 

A  sequel,  released  the  next  year,  sold  2.3  million  cartridges,  and 
"Dragon  Quest  3"  sold  3.4  million.  The  degree  of  anticipation  for 
the  games  was  unprecedented.  On  its  first  day  in  stores,  1.3  million 
copies  of  "Dragon  Quest  4"  sold  out  in  an  hour,  despite  a  price  tag 
of  11,050  ($75)  yen,  higher  than  for  any  other  Nintendo  game. 

The  readership  of  Shukan  Shonen  Jump  shot  up  to  18  million, 


7D  GAME    OVER 


and  circulation  grew  to  6  million.  For  both  magazine  and  licensee, 
the  tie-in  was  a  marketing  coup  that  would  not  be  lost  on  Nintendo 
(which,  meanwhile,  profited  from  the  sales  of  the  "Dragon  Quest" 
games  and  from  the  publicity).  Seven  other  publishers  launched 
magazines  that  provided  game  tips,  profiles  of  designers,  and 
glimpses  of  upcoming  Famicom  games. 

By  1990,  there  were  seventy  licensees  selling  millions  of  copies 
of  hundreds  of  games,  almost  all  manufactured  by  Nintendo.  In 
turn,  the  licensees'  games  helped  sell  more  Famicom  systems,  so 
that  almost  every  household  in  Japan  with  children  had  one.  Cer- 
tain licensees  made  fortunes.  The  "Dragon  Quest"  sequels  grossed 
several  hundred  million  dollars  apiece. 

During  those  days,  the  only  companies  that  still  complained 
about  Nintendo's  strict  licensing  agreement  and  control  of  the 
industry  were,  for  the  most  part,  the  ones  that  couldn't  get  in.  As 
long  as  their  games  were  selling,  companies  were  happy  to  give 
Nintendo  its  large  cut  of  the  fortunes  they  were  making.  There  was 
a  slightly  manic  sense  in  the  industry  that  anything  would  sell. 

But  with  the  proliferation  of  licensees — over  ninety  in  1991 — 
something  had  to  give.  Although  Nintendo  spent  a  year  or  more 
and  upward  of  $1  million  to  develop  each  of  its  games,  smaller 
companies  couldn't  afford  that.  They  used  their  limited  resources 
to  buy  cartridges  from  Nintendo  and  for  marketing  and  packaging. 
Not  much  was  left  for  development.  The  result  was  an  increasing 
number  of  boring  games. 

To  curtail  this  disastrous  flood  of  the  market,  Hiroshi  Yamauchi 
modified  the  agreements  with  third-party  licensees  to  limit  the 
number  of  games  they  could  release  each  year.  Companies,  he 
figured,  would  spend  more  to  develop  better  games,  since  more 
would  be  riding  on  each  one.  Licensees,  however,  were  incensed. 
Who  was  Nintendo  to  tell  them  how  many  games  they  could  re- 
lease? There  were  rumblings  of  discontent — out  of  earshot  of  Nin- 
tendo's executives — about  unfair  restraint  of  trade. 

Tensions  among  licensees  grew  because  of  the  increased  compe- 
tition. For  part  of  1990,  Enix's  "Dragon  Quest  4"  accounted  for  25 
percent  of  the  entire  Famicom  software  business  in  Japan.  Amid 
the  success  stories  there  was  a  growing  number  of  disasters. 

When  the  licensees  fought  one  another,  it  played  into  Hiroshi 


INSIDE   THE    MOTHER    BRAIN  71 

Yamauchi's  hands.  In  the  industry,  he  said,  there  was  room  for 
"one  strong  company  and  the  rest  weak,"  and  he  manipulated  the 
industry  to  make  certain  that  Nintendo  remained  the  one  that  was 
strong. 

The  licensees  were  in  fear  that  any  criticism  of  Nintendo  would 
get  back  to  Yamauchi.  "They  feared  him  like  a  marionette  fears 
the  puppeteer,"  says  one  distributor.  "If  a  company  upset  Nin- 
tendo, he  could  cut  the  strings." 

The  chips  that  were  the  heart  of  the  Famicom  cartridges  were  in 
short  supply  during  the  years  when  consumer  demand  was  soaring 
(from  1988  through  late  1989)  and  Nintendo  was  obliged  to  ration 
cartridges.  The  company  claimed  to  do  the  allotting  fairly  and 
without  bias,  but  licensees  knew  better.  "Nintendo  has  succeeded 
by  monopolistic  practices  and  intimidation,"  said  one  company 
executive.  "We  all  were  intimidated.  Like  a  god,  Yamauchi  wielded 
power." 

Nintendo  anticipated  that  renegade  companies  unwilling  (or  un- 
able) to  become  licensees  would  figure  out  ways  to  manufacture 
Famicom  games  on  their  own.  To  stop  them,  Masayuki  Uemura's 
engineers  had  incorporated  circuitry  inside  the  Famicom  that 
would  reject  non-Nintendo  games.  Periodically  they  modified  the 
code  inside  new  Famicoms  so  that  only  Nintendo-approved  games 
could  play. 

Nintendo  also  deterred  companies  from  releasing  unapproved 
games  through  its  control  of  the  distribution  channels.  It  was  al- 
most impossible  for  an  outsider,  against  Nintendo's  wishes,  to  get 
distribution.  Wholesalers  refused  to  carry  unauthorized  products 
for  fear  of  being  cut  off  by  Nintendo.  No  distributor  would  risk 
alienating  Hiroshi  Yamauchi.  A  tacit  threat  pervaded:  Yamauchi 
would  crush  any  company  that  opposed  him. 

A  small  Japanese  software  company  called  Hacker  International 
didn't  have  the  capital  to  become  a  licensee.  Moreover,  Hacker 
made  video  games  that  included  nudity  and  sex.  Hiroshi  Yamauchi 
allowed  brutal  violence  in  his  games  but  forbade  pornographic 
content.  He  felt  that  "unclean,  dirty"  games  would  tarnish  Nin- 
tendo's reputation. 

Hacker's  engineers  dismantled  Famicoms  and  figured  out  ways 
to  make  games  that  would  work  on  them.  When  Nintendo  changed 


GAME    OVER 


the  circuitry,  Hacker's  techies  found  ways  to  get  around  the 
changes.  Further,  the  company  circumvented  Nintendo's  lock  on 
the  distribution  chain  by  selling  its  games  by  mail.  It  didn't  pay 
royalties  or  manufacturing  costs  to  Nintendo,  so  it  could  make  a 
healthy  profit  on  relatively  small  sales.  It  sold  30,000  to  50,000 
copies  of  many  of  its  games,  hardly  enough  to  threaten  Nintendo. 
Nonetheless,  Yamauchi  decided  to  wage  war  on  Hacker. 

The  magazines  devoted  to  Nintendo  games,  Nintendo  bibles  for 
millions  of  kids,  sold  more  than  any  other  magazines  targeted  to 
young  readers.  They  were  published  by  independent  companies, 
but  they  were  in  fact  completely  dependent  on  Nintendo.  NCL 
provided  much  of  the  editorial  content  of  the  magazines  in  the 
form  of  tips  from  game  designers  (where  to  find  the  whistle  in 
"Super  Mario  3";  how  to  fight  Ganon  in  "The  Legend  of  Zelda"), 
so  the  publishers  did  whatever  Nintendo  asked.  NCL  was  allowed 
to  review  articles  before  publication,  and  it  dictated  when  the  mag- 
azines could  write  about  games.  The  magazines  gave  Nintendo 
editorial  control  because  it  was  the  source  of  the  insider  informa- 
tion for  the  games;  without  it,  the  magazines  were  sunk. 

To  reach  avid  Nintendo  players,  Hacker  placed  ads  in  Family 
Computer  magazine,  the  largest  publication  devoted  to  Famicom 
games.  A  day  after  the  first  ad  appeared,  Hacker  received  notice 
that  its  ads  would  no  longer  run.  Even  ads  that  had  been  paid  for  in 
advance  were  canceled.  In  the  subsequent  issue  of  Family  Com- 
puter, the  magazine's  editors  issued  an  apology  to  Nintendo.  Un- 
usual as  this  was,  it  wasn't  enough  to  appease  Hiroshi  Yamauchi. 
Five  top  managers  of  Takuma  Shoten,  the  company  that  published 
Family  Computer,  rushed  to  Nintendo  to  personally  apologize. 
Yamauchi  gave  them  a  brief  audience,  during  which  the  five  men, 
heads  bowed,  vowed  that  no  such  breach  of  Nintendo's  trust  would 
occur  again. 

The  message  was  unambiguous:  Hiroshi  Yamauchi  had  a  com- 
plete lock  on  Japan's  multibillion-dollar  video-game  industry.  It 
was  felt  by  retailers,  publishers,  distributors,  wholesalers,  licensees, 
subcontractors,  suppliers,  and  many  others  in  businesses  that  were 
both  integral  and  peripheral  to  Nintendo. 

One  of  the  original  licensees,  Namco,  was  run  by  Masaya 


I  N  S  I  DE    THE    MOTH  ER    B  R  Al  N  73 


Nakamura,  who  had  been  lord  of  the  industry  for  many  years,  well 
before  anyone  had  heard  of  Hiroshi  Yamauchi. 

Notoriously  vain,  Nakamura  stamped  his  feet  and  ranted  and 
raved  in  order  to  get  his  way.  In  one  deal  he  passed  up  a  huge 
windfall  because  it  would  have  appeared  that  he  was  concerned 
about  money  more  than  principle.  No  one  was  fooled:  power  was 
Nakamura's  obsession.  A  slight  man  who  wore  large  metal-rimmed 
glasses,  he  founded  Nakamura  Manufacturing  Company,  which 
made  coin-operated  kiddie  rides,  in  1955.  He  entered  the  game 
business  in  the  1970s  and  changed  the  company's  name  to  Namco, 
soon  becoming  the  number-one  video-game  company  thanks  to 
one  phenomenally  successful  game:  "Pac-Man."  A  joystick  con- 
trolled "Pac-Man,"  a  hungry  yellow  dot  that  raced  through  mazes, 
gobbling  up  whatever  was  in  its  path.  Enemies  that  looked  like 
gumdrops  appeared  from  nowhere,  intent  on  eating  "Pac-Man" 
before  it  ate  them. 

Pacmania  struck  worldwide  when  Namco  licensed  the  game  to 
companies  in  the  United  States  and  Europe.  In  America,  "Pac- 
Man"  made  the  cover  of  both  Time  and  Mad  magazines.  A  song, 
"Pac-Man  Fever,"  topped  record  charts,  and  a  Pac-Man  cartoon 
was  a  popular  Saturday  morning  children's  television  program. 
"Pac-Man"  (and  "Ms.  Pac-Man,"  "Baby  Pac-Man,"  and  "Super 
Pac-Man")  brought  Nakamura  hundreds  of  millions  of  dollars. 
(Nakamura  awarded  the  engineer  who  came  up  with  the  game  a 
piddling  $3,500.  Disgusted,  the  man  left  the  video-game  business.) 

Soon  after  Nintendo's  Famicom  system  was  released,  Nakamura 
instructed  a  group  of  his  managers  to  see  what  it  would  take  to 
enter  the  Nintendo  market.  They  inquired  and  were  told  that  no 
outside  companies  could  produce  games  for  the  system.  When  that 
restriction  changed,  however,  Namco  was  the  first  company  to  be 
contacted. 

A  meeting  was  set  up  between  the  two  bosses.  Hiroshi  Yamauchi 
formally  greeted  Nakamura,  and  they  agreed  to  work  together. 
Nakamura  would  profit  by  selling  his  games,  including  "Pac-Man," 
to  Nintendo  players.  At  the  same  time,  it  was  significant  for 
Yamauchi  to  have  as  his  first  licensee  the  industry's  dominant  com- 
pany. Nakamura  expected,  and  received,  favorable  terms — cer- 
tainly more  favorable  than  later  Nintendo  licensees. 


GAME    OVER 


In  1989,  Namco's  original  five-year  contract  expired.  Feeling 
that  he  and  Yamauchi  were  equal,  Masaya  Nakamura  expected 
that  the  renewal  of  the  contract  would  be  a  mere  formality. 
Yamauchi,  however,  used  the  opportunity  to  humble  Nakamura. 
Yamauchi  had  decided  that  all  the  agreements  with  licensees  were 
going  to  be  identical  and  there  would  be  no  exceptions. 

When  this  decision  was  communicated  to  Nakamura,  he  ex- 
ploded. Namco  was  earning  40  percent  of  its  sales  from  Nintendo 
games,  but  Nakamura  would  not  acknowledge  that  Yamauchi  was 
the  stronger.  "All  of  a  sudden  Mr.  Yamauchi  was  king,"  a 
Nakamura  associate  says.  "Mr.  Nakamura  did  not  want  to  observe 
the  rule  created  by  Yamauchi.  It  was  a  slap  in  the  face.  It  was 
unpardonable." 

Nakamura  did  what  no  other  licensee  dared.  He  spoke  out 
against  Nintendo. 

It  began  with  an  interview  he  gave  Nippon  Keisai  Shimbun  {Ja- 
pan Economic  Journal),  He  chose  his  words  carefully:  "The  game 
industry  is  still  new.  I  want  it  to  grow  soundly,"  he  said.  "Nintendo 
is  monopolizing  the  market,  which  is  not  good  for  the  future  of  the 
industry.  .  .  .  Nintendo  should  consider  itself  the  leader  of  the 
video-game  industry  and  accept  the  responsibility  that  goes  along 
with  it."  He  said  that  there  was  no  competition  in  the  industry,  and 
that  companies  kept  silent  because  Nintendo  was  too  strong;  to 
question  Hiroshi  Yamauchi  when  their  businesses  depended  on 
Nintendo  was  suicide. 

Everyone  in  the  industry  in  Japan  wondered  if  this  was  exactly 
what  Nakamura  had  just  committed. 

In  an  interview,  Hiroshi  Imanishi  said,  "Namco  has  profited 
generously  from  the  privileges  awarded  it  by  being  the  first  li- 
censee," but  these  privileges  would  be  "omitted"  in  the  future. 
Nakamura,  in  response,  announced  that  Namco  was  developing 
games  for  Nintendo's  competitor,  Sega,  which  had  released  a  sys- 
tem called  the  Megadrive.  It  was  a  futile  gesture;  Nintendo,  with 
95  percent  of  the  market,  was  invulnerable. 

Nakamura  filed  a  lawsuit  in  Kyoto  District  Judiciary  charging 
Nintendo  with  monopolistic  practices.  Hiroshi  Yamauchi,  in  Zaikai 
magazine,  dismissed  it.  "Frankly,  Namco  is  envious  of  us.  .  .  .  If 
they  are  not  satisfied  with  Nintendo  and  the  way  we  do  business, 


INSIDE    THE    MOTHER    BRAIN  75 

they  should  create  their  own  market.  That  is  the  advantage  of  the 
free  market."  Before  long,  Nakamura  withdrew  the  suit. 

"Mr.  Nakamura  suffered  the  anguish  of  the  defeated  king,"  his 
colleague  says.  "The  biggest  blow  was  to  have  to  crawl  back  to 
Yamauchi — the  defeated  king  accepting  that  he  must  now  be  a 
courtier." 

Nakamura  sullenly  instructed  his  staff  to  accept  Nintendo's  con- 
tract; he  could  not  afford  to  continue  without  a  Nintendo  license. 
Namco's  surrender  was  felt  throughout  the  industry.  If  Masaya 
Nakamura  had  not  been  able  to  stand  up  to  Hiroshi  Yamauchi,  no 
one  could.  Yamauchi's  dominance  was  no  longer  questioned. 

On  February  21,  1986,  after  two  major  delays,  Nintendo  had 
released  a  new  product  called  the  Disk  System,  the  "new  media  of 
family  computers,"  the  company  boasted.  The  system  was  a  disk 
drive  for  the  Famicom  that  attached  to  the  hidden  connector  in  the 
machine's  belly.  With  it,  the  Famicom  could  run  software  on 
credit-card-size  magnetic  diskettes  instead  of  the  traditional  bulky 
Famicom  cartridges. 

The  Disk  System  was  a  large  investment,  15,000  yen  (more  than 
$100),  but  Nintendo  made  it  seductive.  Games  would  be  better,  it 
promised,  since  disks  had  more  memory  capacity  than  cartridges. 
They  also  would  be  cheaper.  Famicom  cartridges  originally  cost 
about  2,500  yen.  That  figure  doubled  by  1985  to  5,000  yen,  almost 
$40.  "Dragon  Quest  4"  sold  for  more  than  $80.  Disk  System  games 
would  be  only  2,600  yen,  about  $20. 

The  biggest  advantage  to  the  Disk  System  for  consumers  was 
that  the  diskettes  could  be  reused.  It  protected  customers  who 
bought  games  they  didn't  like  or  ones  they  grew  tired  of.  Machines 
called  Disk  Writers,  sort  of  like  jukeboxes,  would  be  set  up  in  toy 
and  hobby  shops  throughout  the  country.  Instead  of  a  menu  of 
songs,  the  Disk  Writer  would  have  a  list  of  the  latest  games.  A  disk 
card  would  slip  into  the  Disk  Writer  and  the  existing  program 
would  be  replaced  with  a  new  selection.  The  fee  for  a  rewrite 
would  be  a  mere  500  yen. 

In  an  expensive  ad  campaign,  Nintendo  announced  that  some  of 
the  best  new  games  would  be  available  only  for  the  Disk  System.  It 
said  there  would  be  10,000  Disk  Writers  in  retail  outlets  in  the  first 


76  GAME    OVER 

year.  Half  a  million  Disk  Systems  sold  in  three  months,  almost 
2  million  for  all  of  1986. 

There  was  dissatisfaction  with  the  system,  however.  Licensees 
hated  it.  They  had  to  determine  whether  to  sell  games  in  cartridge 
or  disk  form — or  both.  Nintendo  charged  them  an  ample  fee  to 
convert  their  games  to  disk,  and  the  returns  were  much  lower  than 
on  cartridge  games.  Nintendo  required  the  licensees  to  sign  a  new 
contract  if  they  wanted  to  make  Disk  System  games,  too,  and  it 
included  new  restrictions.  Nintendo  not  only  determined  which 
games  could  be  released  on  disk  but,  most  galling,  retained  half 
ownership  of  the  copyrights  to  all  Disk  System  games.  Copyright  to 
the  licensees'  games  was  one  of  the  very  few  things  Nintendo  didn't 
have  up  to  that  point. 

There  were  other  problems.  Semiconductor  technology  im- 
proved and  prices  dropped,  so  Nintendo  disks  actually  had  less 
storage  capacity  than  cartridges.  Retailers  complained  that  Disk 
Writers  took  up  too  much  space  in  their  stores. 

By  1990,  4.4  million  Disk  Systems  had  been  sold,  far  less  than 
Nintendo  had  projected.  The  company  backed  off  on  its  promise 
(threat)  to  release  games  only  on  disk.  "Super  Mario  Bros."  was 
supposed  to  have  been  a  disk  game,  but  it  came  out  on  both  disk 
and  cartridge.  The  best  games  were  available  only  on  cartridges,  so 
many  Disk  Systems  fell  into  disuse.  The  system  was  not  a  resound- 
ing success,  but  the  sale  of  4  million  pieces  of  hardware  at  over 
$100  each  can  hardly  be  described  as  a  failure. 

Yamauchi  had  loftier  expectations  for  another  new  venture, 
launched  in  1988.  It  would,  he  believed,  reposition  NCL.  Nintendo 
would  no  longer  be  a  toy  company;  it  would  grow  to  be  a  communi- 
cations corporation,  among  the  ranks  of  Japan's  largest  company, 
Nippon  Telephone  and  Telegraph  (NTT). 

The  plan  hinged  on  something  called  the  Family  Computer 
Communications  Network  System.  At  its  center  was  the  Famicom 
and  another  hundred-dollar  piece  of  equipment  that  connected  to 
it,  the  Communications  Adapter  (a  modem),  which  allowed  the 
Famicom  to  hook  up  to  a  telephone  line. 

A  special  cartridge  transformed  the  Famicom  into  a  terminal 
that  could  "talk"  to  other  terminals  or  to  mainframe  computers. 


INSI  DE    THE    MOTHER    BR  AIN  77 


At  its  most  basic,  kids  could  play  video  games— such  as  Henk 
Rogers's  go  game— with  other  players  throughout  Japan  without 
leaving  home.  As  significant  as  this  was,  it  allowed  for  extraordi- 
nary new  uses  beyond  games.  The  network  was  an  appliance  of  the 
future,  Yamauchi  believed — one  day  as  pervasive  as  the  telephone 
— with  Nintendo  technology  at  its  heart. 

The  Family  Computer  Communications  Network  System,  ac- 
cording to  an  NCL  corporate  report,  would  "link  Nintendo  house- 
holds to  create  a  communications  network  that  provides  users  with 
new  forms  of  recreation,  and  a  new  means  of  accessing  informa- 
tion." In  a  speech  to  his  employees,  Hiroshi  Yamauchi  expounded 
on  this  vision.  "From  now  on,  our  purpose  is  not  only  to  develop 
new  exciting  entertainment  software  but  to  provide  information 
that  can  be  efficiently  used  in  each  household." 

Yamauchi  saw  that  the  video-game  business  in  Japan  was  huge 
but  not  unlimited,  partly  because  there  were  only  so  many  house- 
holds (with  kids)  that  were  potential  customers.  Communications 
was  a  bigger  industry,  virtually  limitless.  Other  companies  had 
sought  to  hook  up  households  via  telephone  lines  and  computers, 
including  NTT,  but  none  had  what  Nintendo  had:  computers  sit- 
ting in  one  third  of  the  country's  homes. 

If  Yamauchi  succeeded  in  connecting  a  small  percentage  of  the 
Nintendo  households,  it  would  be— instantly— the  largest  such 
network  in  Japan.  Games,  Nintendo's  stock  in  trade,  were  only  the 
door  in.  The  network  would  offer  a  spectrum  of  business  and 
services  that  would  all  be  provided  and/or  licensed  by  Nintendo. 
Like  any  computer  network  carrier,  Nintendo  could  charge  cus- 
tomers for  on-line  time  (the  time  that  they  used  the  system)  while 
also  charging  the  information  and  service  providers  for  access  to  its 
customer  base. 

In  Nintendo's  1989  annual  report,  Yamauchi  summed  up  his 
vision:  "We  believe  that  the  arrival  of  the  high-information  age  has 
brought  about  a  new  opportunity  for  people  to  consider  what  vital 
information  really  is,  and  what  information  they  really  want.  By 
employing  the  Nintendo  Family  Entertainment  System  as  a  domes- 
tic communications  terminal,  utilizing  regular  telephone  lines,  and 
the  establishment  of  a  large-scale  network  which  to  this  point  has 
been  inconceivable,  we  plan  to  provide  a  vital  supply  of  informa- 


GAME    OVER 


tion  for  the  domestic  lifestyle  in  the  fields  of  entertainment,  fi- 
nance, securities  and  health  management,  to  mention  but  a 
few.  ..." 

An  agreement  was  reached  between  NCL  and  Nomura  Securi- 
ties Co.,  Ltd.,  the  largest  Japanese  brokerage  firm.  Families  would 
be  able  to  use  the  Famicom  to  buy,  sell,  trade,  and  monitor  stocks 
and  bonds.  After  Nomura,  the  Daiwa  and  Nikko  brokerage  houses 
signed  up. 

It  was  only  the  beginning.  Nintendo  could  make  commissions  or 
fees  on  home  banking,  shopping,  and  airline  ticketing  done  on  the 
Network.  NCL  could  charge  for  information  such  as  movie  re- 
views, news,  and  recipes. 

The  network  would  also  be  a  pipeline  into  Nintendo  homes — a 
direct  way  to  advertise  new  games  and  other  new  products.  The 
Super  Mario  Club  was  formed  so  that  Nintendo  distributors  across 
Japan  could  access  information  about  games  (including  reviews) 
on-line. 

Yamauchi  approved  a  multimillion-dollar  budget  for  advertising, 
and  he  personally  met  with  representatives  of  the  brokerage  firms 
and  banks  to  convince  them  to  work  with  Nintendo.  In  spite  of  the 
chairman's  intense  personal  commitment,  the  network  had  a  slow 
beginning.  There  were  difficulties  installing  and  maintaining  it. 
Information  arrived  in  garbled  form,  and  phone  lines  were  cut  off. 
The  technical  problems  were  solvable,  but  there  were  roadblocks. 
One  was  convincing  adults  to  take  the  Famicom  seriously  enough 
to  use  it  for  stock  monitoring  and  banking.  Beyond  that,  all  home 
networks  together  were  attracting  only  a  limited  audience.  People 
either  found  that  banking  and  dealing  with  stocks  were  just  as  easy 
to  do  in  more  traditional  ways  or  they  resisted  the  newer  technol- 
ogy. There  was  another  obstacle:  families  didn't  want  their  tele- 
phone lines  tied  up  for  long  periods  of  time. 

Only  15,000  to  20,000  customers  used  the  stock-brokering  ser- 
vices. Fourteen  thousand  customers  used  the  network  for  banking. 
Three  thousand  businesses  signed  up  for  the  Super  Mario  Club. 
The  total  number  of  households  with  Communications  Adapters 
was  130,000. 

The  low  number  disappointed  Yamauchi,  but  he  never  admitted 
that  he  had  made  a  mistake.  "It  is,"  he  said  in  1991,  "just  a  matter 


INSIDE   THE    MOTHER    BRAIN  79 


of  time."  New  services  brought  new  customers:  soon  you  could  buy 
stamps  from  the  postal  service,  get  odds  and  bet  on  horse  races, 
and  even  exercise  (the  Bridgestone  Tire  Company  used  the 
Famicom  fitness  program  for  its  employees).  "When  the  people 
are  ready  for  it,"  Yamauchi  continued,  "we  have  the  Network  in 
place." 

The  network's  slow  start  and  the  problems  with  the  Disk  System 
didn't  impede  Nintendo's  continuing  growth.  Other  companies 
bringing  in  sales  as  high  hired  hundreds  of  new  employees,  but 
Nintendo  maintained  a  streamlined  operation.  There  were  200 
people  in  research  and  development,  350  in  administration,  180  at 
the  main  factory,  and  another  130  at  the  plant  in  Uji.  Thousands  of 
people  worked  for  Nintendo's  subcontractors,  but  NCL  grew  with- 
out major  capital  expenditures. 

Without  large  numbers  of  personnel  and  gigantic  plants,  Nin- 
tendo could  shift  gears  more  easily.  "We're  not  building  factories 
that  are  tied  to  any  specific  technology,"  an  executive  said.  "That 
differentiates  us  from  98  percent  of  the  companies  in  consumer 
marketing  today.  We're  far  more  flexible  and  far  more  responsive." 

Throughout  the  1980s,  the  number-one  Japanese  corporations, 
according  to  an  independent  rating  by  the  Japan  Economic  Jour- 
nal, were,  alternately,  Toyota  and  Honda.  They  were  the  best  run, 
they  performed  best  on  the  stock  market,  and  they  made  the  most 
money  per  employee  and  the  highest  overall  profits.  For  1989, 
however,  the  magazine  announced  that  the  number-one  company 
was  Nintendo.  The  company's  ascension  to  this  pinnacle  was  no 
abberation;  the  early  1990s  continued  to  see  Nintendo's  economic 
dominance  in  Japan — with  no  slowdown  in  sight.  And  Japan  was 
only  the  beginning. 


\ 


COMING  TO  \v 

AMERICA  ^ 


Minoru  Arakawa's  respected  Kyoto  family  had  been  in  the  textile 
business  for  four  generations.  The  company  imported  quality  silk 
from  China  and  cotton  from  the  West  and  sold  them  to  producers 
of  linens,  kimonos,  yukatay  and  Western-style  garments.  The  busi- 
ness had  grown  steadily  into  one  of  the  largest  in  Japan  and  the 
Arakawas  had  invested  in  prime  real  estate  throughout  the  most 
expensive  section  of  Kyoto. 

Waichiro,  Minoru  Arakawa's  father,  managed  Arakawa  Textiles 
diligently.  Though  not  the  shrewdest  of  businessmen,  he  ran  his 
thousand-employee  company  with  steadiness  and  efficiency  and 
was  satisfied  with  modest  but  consistent  profits — in  the  neighbor- 
hood of  $5  million  to  $6  million  each  year.  Waichiro  Arakawa 
didn't  believe  in  debt  or  rapid  growth.  Instead,  he  was  concerned 
with  the  fine  quality  of  Arakawa  products  and  with  maintaining  his 
good  relationships  with  his  suppliers  and  customers. 


COMING   TO    AMERICA  81 


The  family  was  aristocratic  and  deeply  grounded  in  tradition. 
The  tea  ceremony  was  important  in  the  Arakawa  home.  Neighbors 
and  friends  came  by  for  formal  visits.  Waichiro  did  make  a  few 
accommodations  to  Western  influence— he  often  wore  a  suit  and 
tie — but  the  ancient  home  was  in  most  ways  as  it  had  been  for  the 
past  hundred  years. 

Minoru's  mother,  Michi,  who  dressed  in  kimono  tied  with  an 
obi,  a  wide  silk  sash,  and  wooden  clogs  called  geta,  was  from  a 
family  even  more  highly  regarded  than  her  husband's.  The  former 
Michi  Ishihara  was  a  descendant  of  the  eighth-century  emperor 
Uda  and,  after  him,  the  first  mayor  of  Kyoto.  Her  father  had  been 
a  prominent  member  of  the  Japanese  Diet.  The  Ishiharas  had 
amassed  a  great  deal  of  land  that  supported  many  families  in 
sharecropping  arrangements.  When  Michi  Ishihara  and  Waichiro 
Arakawa  married,  the  combined  land  holdings  of  the  two  families 
equaled  approximately  a  fifth  of  Kyoto. 

Michi  Arakawa  was  an  artist  who  spent  afternoons  in  the  family 
garden  or  in  her  studio,  where  she  sang  while  painting.  Her  paint- 
ings hung  on  the  walls  of  the  family  home  alongside  Picassos, 
Cezannes,  and  Renoirs. 

The  Arakawas  had  high  expectations  for  their  three  children, 
who  were  constantly  reminded  that  their  position— and  their  fami- 
lies' names— came  with  responsibility.  The  children  were  raised  to 
be  soft-spoken,  conscientious,  and  impeccably  mannered. 

Ttadition  determined  the  paths  of  two  of  the  Arakawa  children. 
As  the  eldest  son,  Shoichi  was  to  take  over  the  family  business.  He 
joined  Arakawa  Textiles  after  he  graduated  from  college.  His  sis- 
ter, too,  did  as  she  was  expected— she  got  married  (to  a  professor 
of  medicine). 

There  was,  however,  no  preordained  course  for  Minoru.  Some- 
times second  sons  followed  their  elder  brothers  into  the  family 
business,  but  there  was  no  rule.  Counseled  by  his  parents  to  do 
what  would  make  him  happiest,  Minoru  anguished  over  a  career 
choice.  His  father  offered  simplistic  advice:  "Be  unselfish,  do 
something  for  others."  Looking  back,  Minoru  laughs.  "I  don't 
think  I  am  that  good,"  he  says. 

He  entered  Kyoto  University  in  1964  and  took  general  courses 


GAME    OVER 


until  his  third  year,  when  he  settled  on  a  major  in  civil  engineering, 
in  which  he  went  on  to  earn  a  master's  degree.  He  graduated  high 
in  his  class,  but  with  no  idea  what  to  do  next. 

Minoru's  family  wealth  put  him  in  a  privileged  position.  "It  is 
difficult  when  you  do  not  have  to  work,"  he  says.  "You  have  to 
think.  It  sounds  easy,  but  sometimes  it  is  not.  I  struggled  to  know 
why  we  are  here  and  how  we  should  best  spend  our  lives." 

Arakawa  decided  to  look  for  answers  abroad,  away  from  the 
protected,  insular  world  of  Japan.  He  was  accepted  into  the  gradu- 
ate civil  engineering  program  at  MIT,  and  headed  to  Boston  sev- 
eral months  before  the  school  year  began.  There  he  bought  an  old 
Volkswagen  bus  and  set  out  on  a  journey  through  America,  choos- 
ing local  roads  as  he  crisscrossed  the  country.  Allotting  himself  five 
dollars  a  day  for  expenses,  he  camped  in  state  parks,  national 
forests,  and  parking  lots.  "Each  state  is  a  different  country,"  he 
says.  "The  people  were  like  nothing  I  knew." 

The  year  of  his  adventure,  1971,  was  a  turbulent  one  in  the 
United  States  because  of  the  antiwar  movement.  Arakawa  watched 
from  the  sidelines.  He  had  been  at  demonstrations  that  turned  into 
skirmishes  between  radical  students  and  police  at  Kyoto  University 
in  1968,  but  he  admits,  "I  was  throwing  stones  without  really  un- 
derstanding what  was  going  on."  This  time,  in  America,  Arakawa's 
eyes  were  open  to  larger  issues:  the  war  in  Vietnam,  economic 
inequities,  and  racism. 

In  the  towns  he  passed  through  he  talked,  as  best  as  he  could 
with  his  stilted  English,  to  people  he  met  in  cafes,  bookstores,  and 
parks.  He  was  fascinated  by  all  the  ways  people  chose  to  live.  By 
the  time  he  got  back  to  Boston  with  15,000  more  miles  on  the  bus's 
odometer,  his  mind  was  spinning  with  insights  and  even  more 
questions  than  he  had  started  out  with. 

Years  later,  Arakawa's  colleagues  in  business  would  find  it  ironic 
that  such  soul-searching  preceded  his  heading  up  a  company  that 
would  be  accused  of  everything  from  unfair  restraint  of  trade  to  a 
failure  to  hire  minorities.  In  a  sense,  however,  his  later  success  was 
partly  rooted  in  that  journey  through  America.  After  having  been 
raised  amid  the  tended  gardens  and  peaceful  temples  along 
Kyoto's  narrow  streets,  in  cloistered  tradition  where  conformity 
was  valued  and  expected,  he  was  on  his  own,  six  thousand  miles 


COM  ING    TO    AMERICA  B3 


from  home,  in  the  middle  of  America,  where  the  young  men  and 
women  he  met  were  driven  by  individualism  and  independence. 
He  was  excited  by  it  and  felt,  in  many  ways,  not  unlike  them.  "You 
must  find  what  is  your  own,  what  you  are  good  at,"  he  says.  "If  you 
can  find  that  and  choose  a  goal  you  believe  in  and  work  to  conquer 
it,  you  get  the  most  satisfaction.  There  was  nothing  grand  in  what  I 
found  for  myself.  Still,  it  is  a  valuable  view  of  life:  to  set  your  own 
sights.  Then  to  do  what  is  necessary  to  get  there." 

Arakawa  found  a  place  to  live  in  Cambridge  with  a  Harvard 
student  who  became  his  best  friend.  He  continued  his  study  of  civil 
engineering,  although  he  still  had  not  determined  how  he  would 
use  his  expensive  education.  After  a  year  and  a  half,  he  earned  a 
second  master's  degree  in  1972. 

On  campus  one  afternoon  he  met  a  group  of  young  Japanese 
businessmen  who  were  visiting  the  United  States  as  representa- 
tives of  a  trading  company.  Over  beers,  the  men  boasted  about 
their  jobs.  There  was  an  explosion  of  employment  in  Japanese 
trading  companies  that  were  doing  business  all  over  the  world. 
Their  work,  they  said,  was  stimulating.  It  involved  financing,  ac- 
counting, law,  engineering,  design,  and  even  politics  and  psychol- 
ogy. There  was  a  lot  of  travel,  and  they  were  given  a  great  deal  of 
responsibility  and  freedom.  All  of  that  interested  Arakawa,  who 
decided  to  try  to  find  work  with  a  trading  company. 

Leaving  Boston  was  bittersweet.  Arakawa  had  made  close 
friends  in  America,  and  yet  he  was  eager  to  return  to  Japan. 

He  had  interviews  with  several  trading  companies  in  Osaka  and 
Tokyo  and  was  offered  a  position  with  Marubeni,  a  company  that 
developed  hotels  and  office  buildings  around  the  world.  He  moved 
to  Tokyo,  near  the  company's  headquarters,  and  began  an  appren- 
ticeship. He  leased  an  apartment,  and  the  woman  he  was  dating 
moved  in  with  him. 

Arakawa  returned  to  Kyoto  to  see  his  family  at  Christmastime, 
bringing  along  his  old  roommate  from  Cambridge,  who  happened 
to  be  visiting  Tokyo.  The  two  men  accompanied  Minoru's  parents 
to  an  annual  society  ball,  where  the  elite  of  Kyoto  high  society 
turned  out  each  season.  Everyone  knew  everyone  else  in  that 
small,  select  circle.  Before  they  arrived,  Minoru  warned  his  friend 
that  the  ball  would  probably  be  a  bore.  He  didn't  count  on  meeting 


BA  GAME    OVER 


Yoko  Yamauchi,  an  elegant  and  exceptionally  pretty  woman.  Her 
face  was  self-assured  and  her  eyes  calm.  Her  satiny  black  hair  was 
pulled  back.  When  she  smiled,  her  left  eyebrow  arched  magnifi- 
cently. She  said  she  didn't  like  dancing,  but  she  danced  a  great  deal 
that  night. 

As  a  child  Yoko  butted  heads  with  her  family.  Her  great-grand- 
mother Tei,  who  ran  the  household,  scolded  Yoko  for  playing 
under  the  eaves  of  the  old  house  and  called  her  down  from  the 
high  branches  of  the  trees.  Tei,  who  was  opinionated  and  overbear- 
ing, made  most  of  the  decisions  about  Yoko's  education  and  disci- 
pline. 

Yoko's  mother  was  invisible  during  those  years.  Michiko  had 
had  a  series  of  miscarriages  after  Yoko  was  born  and  she  was  often 
ill  in  bed.  It  was  seven  years  before  she  had  other  children,  a 
daughter  named  Fujiko  and  then  a  son,  Katsuhito.  Once  she  had 
regained  her  health,  Michiko  was  more  involved  with  her  children, 
and  she  and  Yoko  sat  together  and  talked  for  hours  at  a  time. 
Much  of  the  talk  was  about  Hiroshi  Yamauchi. 

Yamauchi  terrified  his  children.  They  hated  Nintendo,  for  they 
saw  how  it  consumed  him.  The  only  attention  he  paid  to  his  daugh- 
ters and  son  was  to  exercise  his  strong  will  and  issue  edicts.  He  laid 
down  the  law  at  home,  enforcing  a  strict  curfew.  Yoko  had  to  be 
home  at  the  dinner  table  at  six,  although  Yamauchi  himself  was 
absent  on  many  of  those  evenings. 

In  his  late  thirties,  Yamauchi  was  suavely  handsome,  a  cigarette 
always  dangling  from  the  corner  of  his  mouth.  Even  after  he  sold 
his  love  hotel,  he  was  a  familiar  face  among  the  Kyoto  demimonde. 
Michiko  said  nothing,  but  the  children  resented  him  bitterly. 

In  1970,  on  her  twentieth  birthday,  Yamauchi  shocked  Yoko 
when  he  announced  that  she  was  going  out  on  the  town  with  him. 
She  dressed  up  and  accompanied  him  to  a  cabaret,  a  sikikake, 
where  five  geishas  attended  them,  serving  drinks.  The  women  obvi- 
ously knew  him  very  well.  Hiroshi  toasted  Yoko's  coming  of  age, 
but  when  it  got  late,  he  sent  her  home  in  a  taxi.  He  didn't  come 
home  until  dawn. 

Yamauchi  was  especially  tough  on  his  daughters.  Young 
women,  he  felt,  could  not  be  trusted.  He  saw  what  they  did 
when  they  were  out  on  their  own  late  at  night;  many  of  the  girls 


COMING   TO    AMERICA  B5 


he  met  were  Yoko's  age.  Likewise,  his  promiscuity,  his  temper, 
and  his  absences  made  Yoko  wary  of  men.  She  decided  that  if 
she  ever  settled  down,  it  would  be  with  a  man  who  had  nothing 
in  common  with  her  father. 

After  Yoko's  twentieth  birthday,  her  parents  considered  arrang- 
ing a  marriage  for  her,  as  was  still  sometimes  done  in  Japan. 
Michiko  tried  a  modern  approach.  She  and  other  parents  con- 
spired and  planned  dates  for  their  children.  Yoko  agreed  to  go 
because  it  was  a  chance  to  get  out  of  the  house,  but  she  had  no 
intention  of  becoming  involved  with  anyone. 

During  Yoko's  senior  year  at  college,  where  she  was  studying 
English  history,  a  friend  asked  her  to  a  society  Christmas  ball.  Her 
father,  contemptuous  of  Kyoto's  old  monied  families,  would  prob- 
ably have  forbidden  her  to  attend,  but  he  was  out  of  town.  Michiko 
gave  her  consent. 

The  ballroom  was  festive  with  decorations  and  the  music  of  a 
small  orchestra.  Yoko  watched  from  a  hallway,  where  she  sipped 
from  a  cup  of  punch. 

A  man  approached  her  and  asked  her  to  dance.  She  could  tell  he 
was  tipsy  and  she  wanted  to  refuse,  but  it  would  have  been  rude.  It 
was  difficult  to  maneuver  in  the  tight  dress,  particularly  in  the  high 
heels  she  had  chosen. 

Doing  her  best  to  keep  up  with  the  man  as  he  guided  her  awk- 
wardly around  the  dance  floor,  she  tried  to  catch  the  eye  of  a  friend 
of  her  mother's,  who  was  dancing  nearby.  The  woman  glanced  in 
her  direction,  caught  Yoko's  SOS,  and  cut  in,  dancing  off  with 
Yoko's  partner  and  leaving  Yoko  in  the  arms  of  the  young  man  she 
had  been  dancing  with. 

Mino  Arakawa  was  dressed  in  a  wide-lapelled  tuxedo.  He  was 
tall  and  thin  yet  athletic.  He  wore  his  shiny  black  hair,  which  swept 
and  rolled,  wavelike,  to  one  side,  slightly  longer  than  most.  He  and 
Yoko  had  never  met,  although  they  knew  about  one  another. 
Yoko's  school  friend  was  Minoru's  cousin;  she  had  raved  about 
him,  saying  he  was  handsome  and  very  bright.  It  struck  Yoko  im- 
mediately that  he  was  different  from  the  Kyoto  men  she  usually 
met.  He  was  cosmopolitan,  educated  in  America,  sophisticated, 
and  funny. 
Minoru  and  Yoko  talked  and  danced  through  the  evening.  They 


SB  GAME    OVER 


laughed  about  the  fact  that  they  had  almost  become  cousins;  her 
aunt  had  been  engaged  to  his  uncle  in  an  arranged  marriage.  The 
wedding  never  happened  because,  scandalously,  his  uncle  had  bro- 
ken off  the  engagement.  It  was  an  unforgivable  embarrassment  to 
both  families,  who  had  gone  so  far  as  to  exchange  gifts,  the  tradi- 
tional way  of  validating  an  engagement.  The  Arakawas'  gift  was  a 
treasured  family  heirloom,  a  family  crest  intricately  embroidered 
onto  silk.  Tei  Yamauchi,  furious  because  of  the  humiliating  breach 
of  etiquette,  cut  the  Arakawa  crest  in  half,  returning  it  in 
pieces. 

Following  the  Christmas  ball,  Mino  traveled  by  train  back  and 
forth  between  Tokyo  and  Kyoto  so  he  could  see  Yoko.  They  took 
walks  together  and  met  for  lunch.  Soon  Mino  informed  his  girl- 
friend in  Tokyo  that  she  had  better  move  out;  he  was  becoming 
seriously  involved  with  someone  else. 

Yoko  and  Minoru  enjoyed  each  other  immensely,  but  they  were 
apprehensive  about  their  families'  opinion  of  the  match.  The 
Yamauchis  may  have  been  almost  as  wealthy  as  the  Arakawas,  yet 
there  was  a  wall  between  their  families.  It  had  already  stopped  one 
marriage;  the  mutilated  Arakawa  crest  was  a  reminder. 

Not  only  was  there  the  question  of  the  standing  of  the 
Yamauchis  in  Kyoto  society,  but  Hiroshi  Yamauchi  had  only  dis- 
dain for  people  like  the  Arakawas.  The  upper  crust  of  society  was, 
he  felt,  conservative  and  pompous.  The  Arakawa  family  was  in  one 
of  the  most  respected  businesses,  and  their  fortune  had  been 
amassed  over  many  generations.  Yamauchi,  on  the  other  hand,  had 
become  the  president  of  his  family's  company  when  he  was  a  brash 
twenty-one.  He  was  beginning  to  make  it  a  success,  but  the  men 
who  ran  the  established  businesses  of  Kyoto  shunned  him.  When 
Yamauchi  was  able  to  get  into  one  of  their  clubs,  the  older  men 
either  ignored  him  or  were  openly  contemptuous.  His  style  be- 
trayed the  distinction  between  them:  Yamauchi  showed  his  coarse 
emotion  to  anyone  within  earshot — his  rages  were  routine— while 
the  Arakawas  were  always  dignified,  revealing  nothing. 

Yoko  Yamauchi  consulted  her  mother,  who  said  she  would  do 
her  best  to  help.  Over  the  coming  weeks,  Michiko  pleaded  Yoko's 
case.  She  told  Hiroshi  that  the  Arakawas  were  known  to  be  differ- 


COMING    TO    AMERICA  B7 

ent  from  the  other  aristocratic  families;  they  were  a  well-respected 
family  and  he  should  give  the  young  Arakawa  boy  a  chance. 

Michiko  had  Yoko  invite  Minoru  to  dinner  at  the  Yamauchi 
home.  Because  of  the  terrifying  portrait  Yoko  had  painted  of  her 
father,  Arakawa  felt  as  if  he  were  preparing  to  visit  Don  Corleone. 

Dressed  in  a  conservative  suit,  he  arrived  at  the  Yamauchis'. 
After  the  introductions  were  made,  he  joined  the  family  at  the  low 
dining  table,  where  Michiko  and  Yoko  served  the  meal.  Hiroshi  sat 
back  in  his  chair  and  studied  his  daughter's  suitor. 

The  evening  wore  on  and  Yamauchi  fired  questions  at  Minoru  as 
if  he  were  conducting  a  job  interview.  He  had  to  be  convinced  that 
Minoru  was  not  a  heavy  drinker  or  a  playboy. 

"You  went  to  Harvard,  eh?"  Yamauchi  asked.  "That  is  a  good 
school." 

Mino  politely  explained  that  he  had  gone  to  MIT. 

"I  have  never  heard  of  it,"  Yamauchi  said. 

Yoko  and  Mino  had  to  convince  him  that  MIT  was  okay  too. 

After  the  meal,  the  family  withdrew  to  the  living  room  for  tea. 
There,  Yamauchi  looked  at  Arakawa  and  said,  without  emotion, 
"If  you  are  going  to  marry  my  daughter,  you  should  marry 
quickly." 

Yoko  and  Minoru  exchanged  glances,  and  the  young  man  nod- 
ded politely.  "Yes,  sir,"  he  said. 

Hiroshi  ribbed  Arakawa,  saying  he  was  a  good  choice  because  a 
woman  shouldn't  marry  a  man  who  was  too  good-looking.  "If  you 
have  a  nice-looking  man,  the  girls  won't  leave  him  alone,"  he  told 
his  daughter. 

At  the  end  of  the  evening,  after  Minoru  had  gone,  Yamauchi  let 
on  that  he  had  actually  been  impressed  by  the  Arakawa  family  all 
along.  He  told  his  wife,  "Arakawa  is  such  a  fine  man  that  no  son  of 
his  could  be  bad." 

Soon  afterward,  in  March,  Minoru  officially  asked  Yoko  to 
marry  him.  She  was  in  love  with  him  but  worried  that  she  should 
wait.  Ultimately  there  was  something  about  Minoru  that  convinced 
her.  His  sense  of  humor  and  contemplative  nature  were  part  of  it. 
She  was  comforted  that  he  was  a  second  son  who  would  never  have 
to  enter  a  family  business.  Nervously,  she  finally  told  him  that  she 
would  marry  him,  and  a  wedding  was  planned. 


GAME    OVER 


The  wedding,  in  November,  was  grand.  There  was  a  ceremony 
under  the  massive,  red-orange  Heian  Shrine  in  the  park  near  the 
Yamauchi  home.  There  were  350  guests,  friends  of  both  large  fam- 
ilies (although  the  Arakawas'  guest  list  was  longer;  Mino  alone 
invited  about  fifty  friends).  An  opulent  dinner  and  champagne 
toasts  in  the  luxurious  ballroom  of  the  Miyako  Hotel  followed  the 
ceremony. 

The  couple  moved  into  a  small  house  in  the  Ogikubo  district  of 
Tokyo,  near  Shinjuku,  close  to  Marubeni's  headquarters.  For  Yoko, 
it  was  thrilling  to  be  in  Tokyo,  away  from  her  parents.  She  and  her 
new  husband  were  happy  newlyweds,  romantic.  She  imagined  that 
their  marriage  would  be  like  that  of  Mino's  parents,  who  were  still 
obviously  in  love  after  many  decades  together,  taking  walks  to- 
gether in  the  evenings  and  treating  each  other  with  affection  and 
respect. 

Yoko  loved  the  tender  and  romantic  attention  she  received  from 
Minoru  and  believed  that  she  had  chosen  wisely — he  was  as  differ- 
ent from  Hiroshi  Yamauchi  as  imaginable.  "It  was  like  living  with  a 
boyfriend,"  she  says. 

By  the  end  of  the  idyllic  first  year,  Arakawa's  new  job  was  taking 
more  and  more  of  his  time.  After  a  training  period,  he  became 
involved  in  some  of  Marubeni's  foreign  ventures.  During  his  sec- 
ond year  he  was  placed  in  charge  of  some  small  projects  that  took 
him  away  from  Japan  for  ten  months  out  of  the  year.  He  flew  off  to 
Caracas,  Toulouse,  Diisseldorf,  and  Vancouver.  He  was  excited  by 
the  travel  and  the  experience  he  was  gaining,  but  Yoko  felt  de- 
serted. "No  one  prepared  me  for  this,"  she  complained  to  her 
mother. 

When  Mino  was  in  Tokyo  it  was  better,  but  there  was  little  time 
for  the  couple  to  be  alone.  He  worked  long  hours,  and  Yoko  was 
often  dragged  to  business-related  dinners  and  cocktail  parties.  She 
found  the  obligations  of  a  Japanese  businessman's  wife  appalling. 
Wives,  Yoko  Arakawa  found,  had  no  identity;  their  place  in  the 
unofficial  hierarchy  depended  on  their  husbands'  position  in  the 
company.  The  first  time  she  went  to  a  wives'  luncheon,  Yoko  sat 
down  next  to  the  assistant  general  manager's  wife  and  was  bluntly 
asked  to  move.  "They  all  looked  at  me,"  she  says.  "They  were 
thinking  that  Arakawa  married  the  wrong  person." 


COMING   TO    AMERICA  S9 


When  her  complaints  to  her  mother  filtered  back  to  Yamauchi, 
he  called  from  Kyoto,  fuming,  berating  her  for  having  chosen 
Arakawa  in  the  first  place.  He  said  she  should  divorce  him.  Yoko 
considered  it,  particularly  when  she  had  their  first  child,  a  daugh- 
ter, and  Arakawa  was  thousands  of  miles  away.  It  struck  her  how 
bad  things  had  gotten  when,  one  time,  she  went  to  Narita  Interna- 
tional Airport  to  pick  him  up  after  a  long  absence  and  he  passed 
right  by  her — they  didn't  recognize  each  other. 

Minoru  came  home  one  evening  in  1977  and  announced  that  the 
family  would  be  moving  to  Vancouver  for  at  least  a  year.  His  firm 
had  challenged  him  to  develop  a  large  condominium  complex 
there.  With  a  $1  million  development  budget,  he  would  be  in 
charge  of  everything  from  negotiating  for  the  land  to  working  with 
architects  to  selling  the  units.  He  told  Yoko  that  Vancouver  was  a 
great  place  to  live.  It  was  cold,  foggy,  and  rustically  beautiful.  The 
move  scared  her,  but  Yoko  thought  they  might  have  more  time 
together  if  they  left  Tokyo  and  the  competitive  company  headquar- 
ters and  settled  into  a  new  place  together.  They  talked  excitedly 
about  the  move. 

The  next  night,  Arakawa  came  home  from  work  and  told  Yoko 
he  had  some  bad  news.  Things  had  changed:  he  was  going  to 
Canada,  but  alone.  The  company  was  not  allowing  wives  to  go.  He 
assured  her  he  would  send  for  her  if  it  seemed  the  work  in  Canada 
would  last,  and  in  the  meantime,  he  would  be  back  and  forth 
between  Japan  and  Vancouver  all  the  time. 

Yoko  spent  a  sleepless  night.  In  the  morning,  she  dressed  up  and 
headed  to  Marubeni.  She  stormed  into  the  office  of  her  husband's 
boss.  "If  I  don't  go,  our  marriage  is  over,"  she  said  flatly.  The  man 
listened  and  then  shook  his  head.  He  said  emphatically  that  she 
should  not  go.  She  would  be  a  drain  on  Arakawa;  she  would  hate 
living  outside  Japan.  But  Yoko  told  him  that  she  would  file  for 
divorce  if  Arakawa  went  without  her;  it  would  be  the  company's 
fault  that  their  marriage  had  fallen  apart.  The  manager  argued 
some  more,  but  he  finally  shrugged  and  capitulated.  "But,"  he  said, 
"I  wouldn't  bother  bringing  anything  with  you.  You'll  be  back  very 
soon." 

Yoko  and  Minoru  left  Japan  with  only  their  daughter,  Maki, 
then  three  years  old,  and  two  suitcases.  They  arrived  in  Vancouver 


90  GAME    OVER 


and  checked  into  a  hotel  next  door  to  a  Denny's  restaurant,  where 
they  ate  greasy  hamburgers  and  ice  cream  sundaes.  "If  this  is 
America,  I  have  made  a  big  mistake,"  she  said  after  one  of  these 
meals.  She  had  smoked  occasionally  at  home,  but  in  Vancouver  she 
acquired  a  three-pack-a-day  habit.  Frequently,  she  considered  us- 
ing the  credit  card  her  father  had  given  her  for  emergencies  to  buy 
tickets  home  for  herself  and  her  daughter. 

Saving  his  budget  for  real  estate  and  construction,  Arakawa, 
insisting  that  he  and  Yoko  make  it  on  their  own,  with  no  financial 
help  from  their  families,  felt  he  couldn't  afford  furniture  or  an 
exorbitant  rent,  so  he  relied  on  a  trick  he  had  learned  when  he  was 
at  MIT;  he  sublet  the  furnished  home  of  a  University  of  British 
Columbia  professor  who  was  on  sabbatical.  He  bought  a  Honda 
Civic  and  drove  to  the  new  office  every  morning.  He  worked  four- 
teen or  more  hours  a  day  while  Yoko,  stuck  at  home,  tried  to  begin 
a  life  in  Canada. 

She  had  thought  that  she  spoke  adequate  English  but  found  she 
could  barely  understand  most  people  she  met.  She  studied  the 
language  by  watching  television  and  developed  an  accent  decidedly 
reminiscent  of  Peter  Falk's  Columbo.  She  wanted  to  enroll  in  En- 
glish classes,  but  $10  an  hour,  the  going  rate,  was  too  expensive. 
She  hired  an  elderly  Canadian  woman  to  baby-sit  for  her  daughter 
for  $1.50  an  hour  and  asked  the  woman  to  correct  her  English 
when  she  said  anything  wrong. 

Her  English  improved,  but  she  complained  to  Mino  that  she  was 
stuck  at  home.  He  surprised  her  one  day  with  an  old  Chevy  he  had 
picked  up  for  $700.  He  opened  a  bank  account  for  her  with  a 
modest  deposit  and  gave  her  a  map  of  Vancouver.  "You  have 
money,  transportation,  and  a  map,"  he  said,  "You  are  on  your 
way." 

Yoko  was  still  miserable.  Her  first  driving  expedition  resulted  in 
a  confrontation  with  the  police.  The  Canadians  in  their  neighbor- 
hood were  impatient  and  rude.  She  had  no  friends,  and  she  never 
saw  her  husband.  Other  than  the  baby-sitter,  she  spent  time  only 
with  her  daughter. 

A  year  went  by.  A  second  daughter,  Masayo,  was  born.  The 
professor  whose  home  they  had  rented  returned,  so  the  Arakawas 
had  to  move.  Mino  didn't  want  to  spend  money  on  movers,  so 


COMING    TO    AMERICA 


Yoko  did  all  the  packing  and  the  two  of  them  did  the  lifting  and 
carrying.  It  was  the  first  of  eight  moves  they  would  make,  from  one 
professor's  house  to  another,  before  buying  their  own  home  in 
West  Vancouver. 

Arakawa's  single  goal  at  that  time  was  to  build  the  condos.  Mar- 
ubeni was  having  financial  trouble,  and  his  successful  execution  of 
the  project  could  help.  It  would  also  establish  him  as  an  important 
asset  to  the  company.  He  portioned  out  his  budget  and  began  the 
development  on  prime  land  he  had  bought  near  Vancouver.  He 
directed  the  clearing  of  the  land,  assisted  in  the  designing  and 
engineering  of  the  complex,  and  oversaw  the  construction.  When 
the  first  units  were  ready  to  be  shown,  Arakawa  himself,  occasion- 
ally with  Yoko's  help,  worked  as  the  agent.  In  order  to  sell  one 
condominium  he  spent  forty-eight  hours  applying  a  fresh  coat  of 
peach-hued  paint  for  a  prospective  buyer.  The  exhausting  efforts 
paid  off  when  Arakawa  began  to  bring  in  a  healthy  profit  on  his 
company's  investment. 

At  the  same  time,  Arakawa  was  trying  to  extricate  Marubeni 
from  another  Vancouver  venture  that  was  losing  money.  In  a  joint 
venture  with  a  Canadian  real  estate  company,  a  Marubeni  subsid- 
iary had  built  a  high-rise  suburban  condominium  complex  called 
Central  Park  Place.  The  434-unit  project  was  just  completed  when 
the  real  estate  market  in  that  area  was  falling  off.  The  condos 
weren't  selling,  so  Arakawa  met  with  the  Canadian  partners  to 
figure  out  ways  to  minimize  the  loss.  It  was  a  grim  business  for 
Arakawa,  although  one  good  thing  came  out  of  the  experience.  He 
met  a  man  who  would  become  a  good  friend— Phil  Rogers,  a  tall 
Englishman  with  thinning  blond  hair  and  attentive  blue  eyes,  who 
worked  for  the  Canadian  developers. 

Yoko  ran  up  large  phone  bills  talking  to  her  mother  in  Japan. 
The  family  flew  back  to  Kyoto  for  a  visit  after  two  years  in  1979. 
After  a  family  dinner  one  night,  Yamauchi  asked  Mino  to  give  up 
Marubeni  and  Vancouver.  He  wanted  him  to  join  Nintendo  and 
open  a  manufacturing  operation  in  Malaysia.  Many  companies  in 
Japan's  toy  business  had  begun  manufacturing  their  products  in 
countries  with  cheaper  labor.  It  was,  Yamauchi  told  Arakawa,  an 
opportunity  he  should  not  pass  up. 


92  GAME    OVER 

Yoko  was  mortified.  She  wanted  nothing  to  do  with  Nintendo. 
Her  father  was  married  to  the  business.  He  brought  home  all  his 
anger  and  frustration  when  things  were  going  badly.  Yamauchi 
himself  blamed  Nintendo  for  his  chronic  stomachaches.  Through- 
out her  childhood,  the  family  had  waited  at  home  for  him  in  the 
evenings,  fearful  of  his  moods.  "We  were  all  shaken  by  him,"  she 
remembers.  "We  all  suffered." 

Although  Mino  worked  just  as  hard  as  Yamauchi,  Yoko  wasn't 
under  anyone's  thumb.  There  was  no  way  she  would  allow  Mino  to 
accept  a  job  with  Nintendo;  Hiroshi  Yamauchi  would  then  be  back 
in  control  of  her  life. 

Arakawa  too  was  suspicious  of  his  father-in-law's  motives.  "He 
decided  I  was  very  much  like  him,"  he  says.  "Or  maybe  he  wanted 
to  test  me."  Arakawa  also  had  little  interest  in  moving  to  Malaysia, 
which  was  Siberia  as  far  as  he  was  concerned. 

They  left  Kyoto  without  giving  Yamauchi  an  answer,  but  Yoko 
never  vacillated.  In  a  conversation  with  her  mother  from  Vancou- 
ver, she  said  that  she  was  absolutely  against  her  husband  joining 
Nintendo.  Michiko  was  so  angry  she  refused  to  speak  to  Yoko  for 
months. 

Arakawa  was  still  immersed  in  his  Marubeni  project,  which  was 
becoming  a  great  success.  He  had  built  a  total  of  350  condomini- 
ums and  they  were  selling  quickly.  Marubeni  had  lost  money  on 
Central  Park  Place,  but  Arakawa's  new  project  was  bringing  in 
healthy  profits.  He  turned  down  his  father-in-law's  offer,  and 
Hiroshi  Yamauchi  scrapped  the  idea  of  overseas  manufacturing. 
However,  he  didn't  give  up  on  his  plan  to  get  his  son-in-law  into 
the  family  business. 

If  Hiroshi  Yamauchi  had  been  much  younger  and  had  spoken 
English,  he  would  have  done  it  himself.  It  was  his  dream  to  go  to 
the  United  States,  to  live  abroad  and  succeed  there. 

Yamauchi  wanted  to  enter  the  American  market,  and  he  needed 
someone  to  manage  the  operation.  Yoko  had  kept  Michiko  ap- 
prised of  her  husband's  progress,  and  she,  in  turn,  reported  to 
Hiroshi.  Hiroshi  Yamauchi  was  impressed,  not  only  by  Arakawa's 
managerial  and  organizational  skills,  but  by  his  perseverance  and 
dedication.  Yamauchi's  son,  Katsuhito,  was  too  young  and  inexpe- 


COMING   TO    AMERICA  S3 


rienced  to  be  given  much  responsibility  at  Nintendo,  and  he  had 
gone  off  to  work  for  Dentsu,  an  advertising  agency.  That  left  only 
Arakawa,  and  the  international  experience  he  had  gained  through 
his  job  with  Marubeni  was  invaluable.  It  was  imperative  that 
Yamauchi  convince  his  son-in-law  to  run  the  American  subsidiary. 

Minoru  and  Yoko  Arakawa  visited  Kyoto  again  in  early  1980. 
One  night,  the  family  had  retired  to  the  living  room  after  a  simple 
dinner  at  the  Yamauchi  home.  As  they  settled  into  some  wicker 
chairs,  Michiko  served  glasses  of  Scotch.  Yoko  stared  out  the  win- 
dow that  overlooked  the  garden,  where  she  had  played  in  her 
youth.  Now  it  looked  like  a  painting  behind  glass. 

Hiroshi  Yamauchi  ran  one  of  his  delicate  hands  through  his  hair. 
Ignoring  his  wife  and  daughter,  he  turned  to  Minoru  and  began 
speaking  softly,  hesitantly.  But  soon  he  was  ardent  and  emphatic, 
focusing  his  stare  directly  on  his  son-in-law.  It  took  two  hours  for 
Yamauchi  to  outline  his  plan. 

Though  he  was  expecting  it,  it  nonetheless  jarred  the  younger 
man  when  Yamauchi  told  Arakawa  that  the  plan  depended  on  him. 
Arakawa  sipped  his  drink  and  looked  over  at  his  wife,  whose  jaw 
was  firmly  set. 

None  of  Yoko's  misgivings  about  her  father,  none  of  her  distrust 
or  her  fears  about  losing  Mino  to  him,  had  disappeared,  and  she 
was  worried  because  she  could  see  that  Mino  was  intrigued. 

Arakawa  didn't  doubt  that  Nintendo  was  doing  well  in  Japan, 
but  he  wondered  if  Yamauchi  was  overestimating  the  company's 
potential  for  expansion.  Now  that  Arakawa  had  helped  strengthen 
Marubeni,  it  was  difficult  to  consider  leaving  the  company.  On  the 
other  hand,  Yamauchi  insisted  that  Nintendo  was  the  uncontested 
leader  of  an  industry  that  was  still  in  its  infancy. 

He  looked  over  at  Yoko,  who  had  finally  come  to  enjoy  life  in 
Vancouver.  She  would  fight  him  if  he  decided  to  do  it.  He  looked 
at  his  father-in-law,  who  was  pouring  more  Scotch  into  his  glass. 
Yamauchi  tugged  at  his  soft  trousers  and  leaned  forward  in  his 
chair. 

The  video-game  business  had  potentials  that  no  one  had  yet 
been  able  to  exploit  fully,  he  said.  His  substantial  investments  in 
research  and  development  had  paid  off,  as  his  engineers  were 


94  GAME    OVER 


learning  to  adapt  proven,  inexpensive  semiconductor  technologies 
for  new  kinds  of  products.  "I  don't  see  any  limitations,"  he  said. 

The  offer  was  straightforward:  Arakawa  would  not  have  to  leave 
North  America;  Yamauchi  now  required  the  experience  Mino  had 
gained  working  there.  And,  he  continued,  Arakawa  would  be  on 
his  own,  president  of  an  independent  subsidiary,  generously 
backed  by  NCL.  If  he  replicated  in  America  even  a  small  portion 
of  NCL's  growth  in  Japan,  Arakawa  would  be  the  president  of  a 
substantial  company. 

"Yoko  and  I  will  discuss  it,"  Arakawa  told  his  father-in-law  as  he 
and  his  wife  wished  Hiroshi  and  Michiko  good  night. 

Yoko  saw  that  Minoru  was  becoming  excited.  Her  independence 
from  her  father  was  suddenly  in  jeopardy;  she  envisioned  herself  in 
the  middle  of  the  inevitable  battles  that  would  arise  between  her 
father  and  Minoru.  She  was  afraid  the  tension  between  the  two 
men  would  strain  her  marriage. 

For  Mino,  the  idea  of  starting  a  new  company  in  an  industry  he 
knew  nothing  about  was  intriguing.  "Yoko  and  I  were  both  from 
rich  families,"  he  says.  "We  could  have  lived  our  lives  without 
working,  so  money  wasn't  a  motivation.  When  it  isn't,  something 
else  must  compel  you."  He  tried  to  reassure  Yoko,  but  she  did  not 
relent.  "No  matter  how  much  you  accomplish,  it  will  be  viewed  as 
mediocre,  because  you  will  be  thought  of  as  the  son-in-law,"  she 
said.  She  looked  longingly  at  the  view  from  their  Vancouver  home. 
She  had  made  friends  there.  She  had  begun  painting  and  taking  art 
classes.  Vancouver  was  a  good  community  in  which  to  raise  her  two 
daughters.  Minoru,  however,  wanted  to  take  the  job  and  she  finally 
gave  in.  "Okay,"  she  said.  "We  will  see." 

New  York,  the  center  of  American  finance  and  commerce, 
seemed  to  be  the  logical  base  for  Nintendo  of  America.  Yoko 
gritted  her  teeth  when  the  Arakawas  left  Vancouver  in  May  1980. 

In  order  to  lessen  the  blow,  Minoru  decided  to  make  the  trip 
east  a  family  adventure.  The  day  they  left,  the  four  of  them  driving 
south  in  a  car  packed  with  suitcases  and  toys  (the  small  amount  of 
furniture  they  had  gathered  was  shipped  by  truck),  Mount  Saint 
Helens  erupted. 

Volcanic  fallout  filled  the  sky  with  an  eerie  orange  dust,  destroy- 
ing the  paint  job  on  the  car.  The  family  retreated  back  into  Canada 


COMING   TO   AMERICA  35 

and  circled  east,  through  the  Canadian  Rockies.  Yoko  thought  this 
an  inauspicious  beginning. 

They  arrived  in  New  Jersey,  where  they  rented  a  home  in  Engle- 
wood  Cliffs.  They  carefully  budgeted  money  earned  from  the  con- 
dominium project;  it  was  a  matter  of  great  pride  to  them  that 
neither  had  ever  asked  for  money  from  their  families.  Yoko  had 
never  used  the  credit  card  her  father  had  slipped  her,  and  she  had 
never  accepted  money  from  her  mother  in  spite  of  the  phone  calls 
from  Kyoto  in  which  Michiko  pleaded,  "Can't  I  at  least  send  you  a 
little  something?  Your  father  would  never  know." 

Yoko  was  Nintendo  of  America's  first  employee,  helping 
Arakawa  choose  a  location  for  an  office  in  Manhattan.  They 
rented  a  small  suite  in  a  high-rise  at  T\venty-fifth  Street  and  Broad- 
way, on  the  seventeenth  floor.  Mornings,  the  two  of  them  drove 
into  the  city  together,  dropping  the  children  at  a  baby-sitter's  on 
the  way. 

Yoko  supervised  the  opening  of  the  office.  She  watched  a  truck 
pull  up  to  the  building's  loading  dock  to  deliver  the  office  furniture 
and  equipment  they  had  ordered,  all  in  cartons  marked  fragile. 
Truckers  flung  the  boxes  onto  the  sidewalk. 

When  the  construction  workers  arrived  to  renovate  the  place, 
she  stood  by  speechlessly.  One  man  who  towered  over  her  opened 
boxes  of  fixtures  or  screws,  taking  his  time  about  installing  them. 
This  man  would  stop  to  wait  for  another  to  show  up  to  connect 
fixtures  to  plumbing  or  electricity. 

The  workers  arrived  sometime  between  8:00  and  9:00  a.m.  At  ten 
they  took  a  coffee  break  that  lasted  up  to  an  hour,  and  at  noon 
they  broke  for  lunch.  They  were  finished  for  the  day  at  three  or  so. 
After  days  of  this,  she  mustered  up  the  nerve  to  politely  question 
one  of  the  men  about  it.  "Welcome  to  New  York,"  he  said. 

Nintendo  of  America's  first  task  was  to  break  into  the  coin-op 
arcade  business,  which  at  $8  billion  per  year  was,  at  that  time,  the 
largest  entertainment  industry  in  the  United  States — bigger  than 
movies  and  television.  Its  customer  base  was  decidedly  narrow: 
mostly  teenagers. 

Without  a  presence  in  America,  Nintendo  Co.,  Ltd.,  had  only  a 
limited  ability  to  cash  in  on  the  boom.  The  arcade  games  it  made 
and  sold  in  Japan  were  licensed  through  a  trading  company  to 


SB  GAME    OVER 

American  companies.  Nintendo  saw  only  a  fraction  of  the  take 
made  by  the  companies  that  sold  their  games  directly  in  the  mar- 
ket. 

Minoru  and  Yoko  spent  many  evenings  at  video  arcades.  They 
looked  over  players'  shoulders  until  it  made  the  young  kids  ner- 
vous. "What  the  fuck's  your  problem,  mister?"  one  kid  in  a  Kiss 
T-shirt  barked  at  Minoru.  Arakawa  asked  him,  "Would  you  like  a 
job?" 

He  watched  kids  stand  in  front  of  the  machines,  transfixed,  their 
hands  melded  to  controllers,  their  bony  arms  like  umbilical  cords 
joining  human  and  machine.  He  asked  the  kids  questions  about 
what  made  a  game  good.  Arakawa  realized  that  the  most  success- 
ful games  had  something  the  players  couldn't  articulate.  The  words 
used  to  describe  them  were  those  usually  reserved  to  describe 
forms  of  intimacy  between  people.  It  was  as  if  the  players  and  the 
game  itself  somehow  merged. 

The  other  phenomena  that  made  successful  games  were  more 
obvious.  They  had  to  have  immediate  impact  and  exciting  noise 
and  graphics;  a  player  had  to  be  captivated  within  the  first  thirty 
seconds.  There  could  be  no  letup  in  the  intensity  for  two  minutes, 
the  time  that  one  quarter  lasted.  If  the  players  weren't  engrossed 
by  then,  they  left  the  machine  for  good.  If  the  game  snared  them, 
the  string  of  quarters  to  follow  could  have  bought  dinner  for  a 
family  of  four. 

Arakawa  hired  kids  he  met  at  video  arcades.  They  worked  in  a 
run-down  warehouse  he  rented  in  New  Jersey.  There  were  enor- 
mous rats,  a  loading  elevator  that  worked  once  in  a  while,  and 
loading-dock  doors  that  always  got  jammed.  There  was  no  heating 
or  air  conditioning.  In  winter  the  place  was  damp  and  frigid,  in 
summer  a  muggy,  relentless  oven. 

Coin-operated  arcade  games  were  shipped  by  boat  from  Japan 
to  the  port  of  Elizabeth,  New  Jersey.  From  there  they  were  trans- 
ported to  the  warehouse. 

Since  there  were  so  few  employees — a  warehouse  manager  and 
a  few  kids — everyone  helped  out.  When  Mr.  A.,  as  the  Americans 
called  him  (Yoko  hated  the  nickname  because  it  reminded  her  of 
the  TV  character  Mr.  T),  wasn't  making  calls  on  customers,  he 


COM  I  NG    TO    AMERICA  9  "7 


worked  alongside  the  half-dozen  young  employees.  He  wore  jeans 
just  like  the  kids,  and  he  put  in  as  much  effort  as  anyone. 

One  of  Arakawa's  first  tasks  was  to  hire  a  sales  team;  Nintendo 
of  America  needed  an  entree  to  the  large  video-game  operators 
and  distributors  around  the  country.  He  approached  the  pair  who 
had  been  selling  Nintendo's  games  in  America  for  the  past  few 
years,  Al  Stone  and  Ron  Judy. 

Stone,  who  had  attended  Lowell  High  School  in  San  Francisco 
and  then  the  University  of  California  at  Berkeley,  had  once  set  his 
sights  on  a  career  in  professional  baseball,  although  he  had  more 
of  a  football-player's  physique — the  square  head  and  wide  shoul- 
ders of  a  linebacker.  After  playing  some  minor-league  ball  in 
Reno,  he  finished  college  at  the  University  of  Washington,  gradu- 
ating with  a  degree  in  finance  and  economics,  and  then  tried  selling 
sausages  and  representing  a  steamship  line.  Eventually  he  moved 
to  Silicon  Valley  to  work  for  Intel,  the  semiconductor  giant. 

Stone  had  met  Ron  Judy  when  they  were  both  at  the  University 
of  Washington.  They  lived  in  the  same  fraternity  house  and  be- 
came business  partners,  running  the  Business  Week  franchise  on 
campus.  On  one  occasion  they  bought  a  huge  shipment  of  cheap 
wine  that  a  local  company  was  going  to  dump  and  sold  it  to  stu- 
dents. 

Judy  was  a  compact  man  with  deep  blue-gray  eyes,  eyebrows 
that  seemed  stenciled  on,  and  a  pencil-thin  mustache.  For  fourteen 
summers,  from  grade  school  through  college  in  Seattle,  he  had 
worked  in  his  father's  construction  business.  Most  of  his  time  was 
spent  clearing  land  for  interstate  freeways.  For  a  time  he  worked 
on  the  Alaska  pipeline  in  fifty-degrees-below-zero  weather,  so  that 
Chicago,  where  he  headed  later  to  finish  his  degree  (at  the  Univer- 
sity of  Illinois),  seemed  mild  by  comparison. 

After  graduating  in  1972,  Judy  moved  to  New  York  to  consult 
for  Chase  Manhattan  Bank  on  mergers  and  acquisitions.  Then  he 
moved  to  San  Francisco  to  work  for  a  small  company  that  con- 
sulted with  high-technology  firms.  He  and  Al  Stone,  then  at  Intel 
down  the  peninsula,  got  together  sometimes  after  work  to  drink 
beer  and  mull  over  ideas.  They  agreed  on  two  things:  they  were  fed 


GAME    OVER 


up  with  working  for  other  people,  and  they  wanted  to  make  more 
money. 

They  formed  their  first  business  in  Seattle,  a  trucking  company 
they  called  Chase  Express.  They  managed  a  fleet  transporting  con- 
tainers from  Seattle's  piers  when  a  friend  of  Judy's  called  from 
Hawaii  with  a  proposition.  He  said  it  was  a  sure  thing.  Judy  found 
himself  at  the  air-freight  dock  of  the  airport,  claiming  a  giant  crate. 
He  tried,  unsuccessfully,  to  get  it  into  the  back  of  his  station 
wagon.  He  finally  gave  up  and  tied  it  on  the  roof. 

Judy  unpacked  the  crate  in  his  living  room.  Inside  was  some- 
thing that  looked  like  a  cocktail  table  with  a  TV  screen  that  faced 
upward,  like  a  tabletop.  It  was,  he  had  been  promised,  the  latest 
thing  in  Japan,  great  for  a  lounge  or  pizza  parlor,  where  customers 
stuffed  in  coins  while  they  sucked  down  pizza  and  beer.  A  video 
game  called  "Space  Fever"  was  played  on  the  machine,  and  it  was 
made  by  a  company  called  Nintendo. 

Judy  convinced  a  local  hotel  owner  to  let  him  put  the  game  in 
the  cocktail  lounge,  agreeing  to  a  sixty-forty  split  of  the  take.  It  did 
fairly  well,  although  one  game  wasn't  worth  the  effort.  His  friend 
sent  along  two  more  tabletop  games  from  Hawaii,  explaining  that 
all  the  big  Japanese  companies  had  representatives  in  the  United 
States  except  for  Nintendo.  A  trading  company  in  Japan  was  buy- 
ing games  from  NCL  and  sending  them  to  him  in  Hawaii,  and  they 
needed  someone  to  bring  them  into  the  mainland. 

When  the  games  arrived  from  Hawaii,  Judy  arranged  to  have 
them  set  up  in  another  Seattle  bar.  The  games  made,  in  Judy's 
words,  "obscene  profits."  It  was  enough  to  convince  him  and  Stone 
to  enter  the  video-game  business.  They  formed  a  new  company, 
Far  East  Video,  and  set  out  to  sell  Nintendo  machines  throughout 
the  United  States.  They  bought  machines  from  the  trading  com- 
pany and  tried  to  sell  them  to  local  operators  or  small  distributors. 
In  the  process,  they  became  masters  at  convincing  airline-ticket 
agents  to  ignore  baggage  weight  and  size  limitations  so  they  could 
get  their  game  machines  on  commercial  flights.  From  Peoria  to 
Phoenix,  they  begged  taxi  drivers  to  let  them  load  the  game  ma- 
chines into  the  trunks  of  their  cabs.  Video  games  were  so  hot  that 
even  the  bad  games  were  selling.  They  bought  the  machines  for 
less  than  $1,000  each,  and  customers  were  happily  buying  five  or 


COMING   TO   AMERICA  99 

ten  of  them  at  roughly  $1,500  each.  Distributors  sold  them  to 
operators  for  as  much  as  $2,500.  It  made  their  backaches  worth- 
while. 

Mino  Arakawa  contacted  Judy  and  Stone  in  late  1980  and  asked 
them  to  see  him  on  their  next  trip  to  New  York.  The  meeting 
coincided  with  Hiroshi  Yamauchi's  first  visit  to  his  new  subsidiary. 
Yoko  worried  that  her  father  couldn't  avoid  meddling;  she  feared  a 
blowup. 

Although  he  timed  the  visit  so  that  he  could  accompany 
Arakawa  to  an  arcade-game  industry  trade  show,  the  other  reason 
Hiroshi  came  to  New  York  was  to  check  up  on  Yoko  and  his 
grandchildren.  His  wife  had  pressed  him  to  go;  she  felt  that  Yoko 
was  drifting  away  from  them.  She  seemed  distant  on  the  telephone; 
she  was  working  too  hard;  America  was  too  far  away. 

Soon  after  Yamauchi  arrived  in  New  York,  he  began  to  see  that 
Michiko's  perception  was  correct;  something  had  changed.  Yoko, 
however,  was  hardly  unhappy.  She  seemed  content  and  confident 
in  a  way  that  surprised  him.  In  all  the  years  she  smoked,  Yoko  had 
never  lit  up  in  front  of  her  father.  Despite  his  lifelong  habit, 
Hiroshi  was  part  of  the  generation  that  held  the  double  standard 
that  smoking  was  unladylike.  It  never  stopped  Yoko  from  smoking, 
only  from  letting  him  know  about  it. 

Sitting  in  a  Manhattan  restaurant  after  dinner  one  night,  Yoko 
turned  to  her  father  and  asked  nonchalantly,  "Do  you  mind  if  I 
smoke?"  He  looked  at  her  sharply,  paused  for  one  long  moment, 
then  pulled  out  his  own  pack  and  shook  out  a  cigarette,  offering  it 
to  her.  She  accepted  it  and  leaned  over  to  meet  the  match  he  held 
out  for  her.  Nothing  was  said,  but  that  moment  was  the  start  of  a 
change  in  their  relationship.  Yamauchi  saw  for  the  first  time  that 
his  daughter  was  a  strong,  independent  woman.  He  also  realized 
that  he  liked  her  very  much. 

"Dad,"  she  said  as  they  walked  through  midtown  Manhattan,  "I 
know  you're  worried  about  how  things  are  going  here."  She  took  a 
drag  of  the  cigarette  and  continued.  "But  hold  back  a  little  longer; 
let  Mino  do  it  his  way." 

Yamauchi  said  he  would — for  a  while. 

One  afternoon,  Al  Stone  and  Ron  Judy  came  in  to  meet  with 
Arakawa  and  Yamauchi  at  the  Manhattan  office.  Arakawa  did  the 


GAME    OVER 


talking,  although  Stone  and  Judy  noticed  that  he  frequently  looked 
to  Yamauchi. 

Arakawa  said  he  intended  to  import  Nintendo's  arcade  games 
directly  to  America  and  he  hoped  that  Stone  and  Judy  would  work 
with  his  new  company.  From  their  perspective,  it  was  a  risk-free 
deal:  they  would  remain  independent  and  Arakawa  would  cover 
their  expenses.  Their  per-game  take  would  remain  about  the  same, 
so  they  stood  only  to  gain  by  the  arrangement. 

Stone  and  Judy  told  Arakawa  and  Yamauchi  that  they  could  sell 
every  game  Nintendo  made  if  the  games  were  better.  Games  such 
as  "Space  Fever"  and  "Sheriff"  did  fairly  well,  but  what  they  all 
hoped  for  was  a  killer  game  from  NCL — a  "Space  Invaders"  or  a 
"Pac-Man." 

Yamauchi  said  nothing.  He  left  New  York  repressing  his  intense 
urge  to  take  over.  There  hadn't  been  even  one  conflagration  with 
Arakawa. 

Judy  and  Stone  took  their  contract  to  an  attorney,  Howard  Lin- 
coln, of  the  Seattle  law  firm  of  Sax  and  Maclver.  Lincoln  had  quite 
a  reputation  in  Seattle.  Someone  said  of  him,  "To  call  Howard 
Lincoln  forthcoming  would  be  an  oxymoron — like  jumbo  shrimp." 
The  thirty-eight-year-old  attorney  had  the  down-home  affability  of 
an  old  Kentucky  colonel,  but  he  was  also  capable  of  intimidating 
almost  any  adversary.  And  when  he  lost  control,  which  was  rarely, 
wise  men  and  women  got  out  of  his  path.  He  carried  himself  with 
effortless  confidence  and  ease.  When  he  spoke,  he  was  jocular  and 
warm;  there  was  reassurance  in  his  voice.  He  was  dapper,  almost 
preppy,  and  fox-sharp. 

Lincoln  had  intense,  circumspect  brown  eyes,  small  for  his  face, 
and  the  flushed  cheeks  of  an  outdoorsman  (his  fishing  buddies  had 
given  him  the  nickname  Cato,  after  the  Green  Hornet's  sidekick, 
for  his  reckless  pursuit  of  king  salmon).  Every  chance  he  got,  he 
headed  into  the  mountains  or,  at  least  once  a  year,  up  to  Alaska  to 
fly-fish  in  high-country  rivers.  He  relaxed  then,  but  at  other  times 
his  neck  muscles  were  taut  and  he  held  his  shoulders  high,  as  if 
ready  to  protect  his  face  in  a  fight.  It  was  one  of  the  few  signs  that 
betrayed  the  quick  thinking  beneath  his  composure. 

Lincoln  was  born  in  Oakland,  California,  where  his  father  was 
an  executive  with  the  Pullman  Company,  makers  of  Pullman  rail- 


COMING   TO    AMERICA  1D1 

road  cars.  The  elder  Lincoln  was  a  reserved  man,  hard  of  hearing, 
who  was  well  liked  in  his  community  and  by  his  employees.  His 
wife  was  an  elegant  woman,  delicate  and  gracious. 

Throughout  World  War  II,  the  American  government  moved 
troops  by  the  nation's  railroads,  which  kept  Lincoln's  father  partic- 
ularly busy.  Howard  remembers  being  taken,  at  age  four  or  five,  to 
visit  trains  carrying  wounded  soldiers  who  had  been  shipped  back 
to  San  Francisco. 

Lincoln  attended  high  school  in  the  fifties.  A  skinny,  short- 
haired  boy,  he  dressed  in  short-sleeved  shirts  and  cuffed  pants.  He 
was  active  in  his  local  Baptist  church  and  the  Boy  Scouts.  In  1954 
he  was  a  model  for  a  Norman  Rockwell  painting  that  appeared  on 
the  Boy  Scout  calendar  for  1956.  A  scoutmaster  stood  over  a  well- 
tended  campfire  near  a  bunch  of  scouts  in  sleeping  bags.  Lincoln 
was  the  blond  boy  with  the  angelic  smile. 

With  the  rise  of  commercial  air  travel,  the  Pullman  Company's 
fortunes  inevitably  declined.  After  forty-eight  years  with  the  com- 
pany, Howard's  father  presided  over  its  slide,  but  by  then  his  son 
had  entered  college.  At  the  University  of  California,  Berkeley,  he 
gravitated  toward  law.  When  he  arrived  in  September  1957,  frater- 
nities still  controlled  campus  life.  The  situation  soon  changed:  the 
budding  Free  Speech  Movement  rocked  the  campus.  Lincoln 
watched  it  from  the  distance  of  a  student  determined  to  go  to 
Boalt  Hall,  where  he  succeeded  in  gaining  admission  in  1962.  He 
graduated  high  in  the  same  class  as  Rose  Bird,  who  would  later 
become  a  chief  justice  of  the  California  Supreme  Court. 

The  draft  for  the  Vietnam  War  was  in  effect,  and  three  days 
before  he  took  the  bar  exam,  Lincoln  was  called  to  report  for  a 
physical.  He  headed  downtown  to  Oakland's  Naval  Reserve  cen- 
ter, where  he  signed  up  to  be  a  seaman  recruit.  Before  he  was 
called  into  service,  he  took  a  short-term  job  working  for  the  Ala- 
meda County  district  attorney,  Frank  Coakley.  (Earl  Warren  had 
served  in  that  office  before  he  went  on  to  the  Supreme  Court.) 

Lincoln  worked  on  an  embezzlement  case  in  Coakley's  depart- 
ment (a  county  assessor  was  accused  of  accepting  a  bribe),  and 
then  for  an  associate  district  attorney  named  Ed  Meese.  He  aided 
Meese  on  several  cases  and  enjoyed  working  with  the  ambitious 
and  contentious  future  U.S.  attorney  general. 


GAME    OVER 


When  Meese  went  off  to  work  for  Governor  Ronald  Reagan  as 
his  clemency  secretary  in  1966,  Lincoln  went  into  the  navy  with  a 
commission  as  a  judge  advocate.  He  headed  to  Newport,  Rhode 
Island,  to  take  the  officers'  training  course  and  learn  the  ropes  of 
military  adjudication.  When  he  was  offered  duty  in  either  New 
York  City  or  Seattle,  he  headed  west. 

Stationed  at  Sand  Point  Naval  Air  Station  on  Lake  Washington, 
headquarters  for  the  Thirteenth  Naval  District,  Lincoln  tried 
court-martial  cases.  While  hanging  out  at  the  bachelor  officers' 
quarters,  he  met  a  striking  woman,  a  naval  lieutenant  from  Kansas, 
where  she  had  worked  as  a  schoolteacher.  Bored,  she  joined  the 
navy  and  received  a  commission  as  a  line  officer  and  served  a  tour 
of  duty  in  a  photographic  intelligence  unit.  Afterward  she  was  sent 
to  Seattle  to  recruit  Wave  officer  candidates. 

She  and  Lincoln  married  six  months  after  they  met. 

Grace  Lincoln,  blond,  with  large  green  eyes,  and  curvaceous,  cut 
an  impressive  figure  in  a  navy  uniform.  When  Lincoln  accompa- 
nied her  to  the  base  grocery  store  and  they  were  both  in  uniform, 
men  winked  or  flashed  him  the  A-okay  sign.  He  felt  that  he  had  to 
tell  them,  "No,  it's  not  like  that — we're  married." 

Many  courts-martial  for  desertion  were  tried  throughout  the 
Vietnam  War.  Lincoln  was  assigned,  variously,  either  to  defend  or 
prosecute  the  accused.  Isolated  on  a  naval  base,  he  had  no  contact 
with  antiwar  protests,  while  Grace,  recruiting  on  college  campuses 
with  a  group  of  navy  pilots,  was  attacked  physically  and  verbally. 
When  her  tour  of  duty  was  over,  she  was  relieved  to  retire  from  the 
military. 

When  Lincoln  followed  her  into  civilian  life  in  1970,  the  couple 
had  to  decide  where  to  settle  down.  He  considered  looking  up  Ed 
Meese,  then  in  Sacramento  with  Governor  Ronald  Reagan,  but  in 
the  end  they  chose  to  stay  in  Seattle.  He  sent  his  resume  to  all  the 
top  Seattle  firms  and  was  hired  by  Sax  and  Maclver,  where  he  built 
up  a  sizable  practice,  specializing  in  banking  and  corporation  law. 

Lincoln  often  worked  with  a  CPA  who  did  the  books  for  Ron 
Judy  and  Al  Stone.  The  CPA  asked  Lincoln  to  look  at  a  contract 
between  his  clients  and  Nintendo  of  America.  It  confirmed  that  the 
pair  would  be  the  sole  U.S.  distributors  for  Nintendo  in  the  coin- 


COM  ING   TO    AMERICA  103 


operated  video-game  business,  in  exchange  for  the  payment  of  a 
set  figure  for  each  machine  they  sold. 

The  contract  was,  Lincoln  told  them,  "completely  screwy." 
When  he  asked  who  had  put  the  document  together,  he  was  told  it 
was  NOA's  president,  Minoru  Arakawa.  He  helped  Stone  and 
Judy  fix  the  contract  before  they  headed  off  to  New  York  to  set  up 
Nintendo's  distribution  network. 

Nintendo's  new  sales  team,  Judy  and  Stone,  had  good  connec- 
tions throughout  the  industry.  The  two  had  worked  with  numerous 
distributors  and  operators  (who  often  owned  machines  in  locations 
such  as  bowling  alleys,  bars,  and  restaurants).  Occasionally  they 
ran  into  some  shady  characters — one  aggressive  operator,  wanting 
more  liberal  payment  terms,  hinted  that  he  was  well  connected 
with  the  mob — but  more  often  the  business  was  straightforward.  If 
buyers  liked  a  game,  they  paid  cash  for  consoles.  That  was  it.  There 
were  none  of  the  complications  of  the  consumer  business:  almost 
no  advertising,  marketing,  promotion,  or  royalties.  The  industry 
had  slowed,  however,  and  the  new  company's  sales  were  weak. 
Ron  Judy  told  Arakawa  that  they  needed  a  big  hit  if  he  and  Stone 
were  going  to  stay  with  Nintendo.  By  1980  they  were  barely  keep- 
ing above  water. 

The  game  that  was  to  turn  things  around  was  "Radarscope,"  an 
uncomplicated  shooting  game  in  which  the  player  lined  up  an  en- 
emy fighter  in  a  site  and  blasted  away.  Arakawa  placed  some  sam- 
ples in  test  locations  around  Seattle  and  the  results  were  good. 
"Radarscope,"  he  decided,  was  the  game  he  would  use  to  push  his 
operation  into  the  big  time.  He  ordered  three  thousand  units.  By 
placing  an  order  that  large,  Arakawa  was  committing  almost  ail  of 
NOA's  resources. 

It  took  almost  four  months  for  the  ship,  heavy  with  the  game 
consoles,  to  travel  from  Japan  to  Elizabeth.  Arakawa  was  already 
in  a  panic  when  it  arrived,  because  the  excitement  for  "Radar- 
scope" seemed  to  be  evaporating.  The  games  in  the  test  locations 
sat  idle,  and  he  had  no  idea  if  he  would  be  able  to  sell  them.  He 
was  learning  the  hard  way  about  the  fickle  tastes  of  video-game 
devotees.  A  hot  game  could  become  passe  overnight.  THed-and- 
true  games  such  as  "Pac-Man,"  some  of  the  classic  shoot-outs,  and 


1  D4  GAME    OVER 


sports  and  car-racing  games  always  brought  in  decent  returns,  but 
it  was  impossible  to  count  on  new  games.  By  the  time  "Radar- 
scope"  arrived,  it  seemed  old,  and  Arakawa's  in-house  gamers 
gave  him  feedback  he  didn't  want  to  hear:  the  game  was  boring. 

Ron  Judy  and  Al  Stone  did  their  best  to  peddle  "Radarscope," 
but  operators  who  previously  had  indicated  they  might  buy  dozens 
took  only  two  or  three.  Arakawa  lowered  the  price,  but  he  was  still 
left  with  more  than  two  thousand  games.  Stone  and  Judy  were 
going  broke.  To  keep  going,  Judy  borrowed  $50,000  from  his  aunt, 
her  life  savings.  He  thought,  I've  lost  everything.  I'll  be  in  debt  for 
the  rest  of  my  life.  Arakawa  was  deeply  worried.  "I  was  thinking  it 
was  a  big  mistake  to  take  this  job,"  he  says.  He  was  loath  to  tell 
Yamauchi  he  was  in  trouble,  but  he  had  no  choice.  Nintendo  of 
America  would  sink  under  the  weight  of  all  those  "Radarscopes." 

Yoko  Arakawa's  worst  fears  were  being  realized.  She  was  smack 
in  the  middle  of  the  clash  she  saw  coming  between  her  husband 
and  father.  Arakawa  had  postponed  making  the  telephone  call,  but 
finally  he  called  Yamauchi  and  told  him  that  "Radarscope"  wasn't 
selling  and  NCL's  fledgling  subsidiary  was  in  trouble.  Yamauchi 
snarled,  telling  Arakawa  that  he  knew  he  had  overstepped  himself 
with  that  huge  order.  What  did  Mino  want  him  to  do?  He  never 
would  have  made  that  many  games  if  Arakawa  hadn't  ordered 
them.  .  .  . 

All  coin-operated  video  games  looked  essentially  the  same  on 
the  outside:  a  cabinet,  joysticks,  and  a  screen.  What  made  the 
games  unique  was  inside  the  cabinet,  the  PC  board,  or  "mother 
board" — the  game's  processor,  chips,  and  circuitry.  Arakawa  could 
have  the  "Radarscope"  cabinets  repainted,  and  he  could  have  the 
"Radarscope"  program  chips  removed.  The  problem  was  that  he 
had  nothing  with  which  to  replace  those  chips.  Arakawa  weakly 
told  Yamauchi  that  he  needed  a  new  game  quickly. 

On  the  phone  to  Yoko,  Yamauchi  screamed  about  her  husband's 
ineptitude.  He  said  he  felt  he  had  made  a  serious  mistake  of  the 
kind  he  had  never  made  before:  judging  character.  Arakawa,  irri- 
tated by  Yamauchi's  I-told-you-so  arrogance,  bellyached  about  his 
father-in-law.  He  felt  he  should  have  listened  to  his  wife  and  stayed 
away  from  Nintendo.  Yoko,  meanwhile,  felt  torn  apart.  "It  was  like 
I  was  on  a  ship  that  was  going  down  in  the  middle  of  the  ocean," 


COM  I  NG    TO    AM  ER  I  C  A  105 


Yoko  says.  "Tvo  captains  were  shouting  into  my  ears  about  what 
must  be  done,  about  how  disastrous  things  were."  When  she  called 
to  get  sympathy  from  her  mother,  Michiko  was  anything  but  help- 
ful. "Be  patient,  be  cheerful,"  she  said.  The  advice  incensed  Yoko. 
"If  all  I  needed  was  encouragement,  I  wouldn't  be  calling,"  Yoko 
snapped.  Reluctantly,  when  summer  arrived  a  few  months  later, 
she  followed  through  with  her  plans  to  take  the  children  to  Kyoto 
for  a  visit,  even  though  the  tension  was  hardly  bearable. 

In  America,  while  they  waited  for  the  new  game  chip,  Arakawa 
pushed  Nintendo's  other  games,  and  also  decided  to  move  his  base 
of  operations.  It  was  a  mistake  to  be  in  New  York.  The  "Radar- 
scope"  disaster  illustrated  the  repercussions  of  being  so  far  from 
Japan.  Shipping  to  North  America's  West  Coast  would  cut  out 
weeks,  even  months,  of  delay.  The  decision  was  personal,  too.  He 
and  Yoko  had  loved  living  in  Vancouver,  and  neither  of  them  was 
comfortable  in  New  York.  The  frenetic  pace  was  exhausting,  and 
all  the  driving  between  the  midtown  Manhattan  office  and  the 
warehouse  and  service  center  in  New  Jersey  was  inefficient. 

Arakawa  had  agents  search  for  offices  in  California,  Washing- 
ton, and  Oregon.  The  major  urban  center  in  the  United  States  that 
was  nearest  to  Vancouver  was  also  the  closest  to  Japan:  Osaka 
harbor  to  Seattle  took  nine  days  by  boat.  Seattle  was  a  thriving 
region  of  new  industry,  yet  it  was  hardly  exploited.  Real  estate  was 
still  affordable,  and  there  were  other  pluses:  as  a  lumber-produc- 
ing area,  there  were  companies  that  made  fine-quality  wood  prod- 
ucts, and  they  could  make  cabinets  for  arcade  games.  There  was  a 
high-quality  labor  pool  because  of  Boeing  and  the  many  high- 
technology  companies  in  the  Seattle  area.  The  city's  population,  of 
about  2  million,  was  enough  to  support  good  restaurants  and  arts 
and  entertainment,  yet  not  so  big  as  to  make  it  overwhelming,  like 
New  York. 

To  search  for  a  place  in  Seattle,  Arakawa  contacted  Phil  Rogers, 
from  his  days  with  Marubeni.  Rogers  put  him  in  touch  with  a 
broker  who  found  a  warehouse  to  lease  in  a  suburb  called  Tbkwila, 
not  far  from  Seattle-Tacoma  International  Airport. 

In  the  Segali  Business  Park  Nintendo  leased  a  60,000-square- 
foot  warehouse  with  three  small  offices  built  into  a  corner. 
Arakawa  took  one  for  his  main  office,  and  Judy  and  Stone  moved 


10B  GAME    OVER 

into  another.  The  main  warehouse  became  the  assembly  and  distri- 
bution site  for  the  game  machines.  The  service  center  was  there 
too.  All  the  games  remaining  in  New  Jersey,  including  the  two 
thousand  "Radarscopes,"  were  shipped  by  rail  to  the  Seattle  ware- 
house. 

Minoru  called  Yoko  in  Japan  and  asked  her  to  come  back  to 
help  with  the  move  from  New  York.  She  flew  to  Seattle  and  they 
found  a  home  to  rent — an  attractive  four-bedroom  place  on  a  half- 
acre  in  Bellevue,  across  Lake  Washington  from  Seattle.  Then,  in 
New  York,  she  arranged  movers  to  ship  their  furniture  and  clothes 
back  west. 

In  Japan,  Yamauchi  made  a  quick  check  of  his  R&D  groups  and 
found  that  all  the  key  engineers  and  programmers  were  too  busy  to 
be  diverted  to  help  with  Arakawa's  problems.  The  United  States 
represented  an  infinitesimal  portion  of  NCL's  business,  and  he 
couldn't  justify  taking  one  of  his  top  designers  away  from  more 
important  work.  He  told  this  to  Arakawa,  who  was  growing  more 
and  more  desperate. 

Arakawa  pleaded  with  Yamauchi  until  his  father-in-law  finally 
agreed  to  put  someone  on  the  project.  The  chairman  told  Gunpei 
Yokoi  to  oversee  the  work  of  the  young  apprentice  he  had  asked  to 
come  up  with  something.  "But  he  knows  nothing  about  video 
games,"  Yokoi  said. 

Yamauchi  responded  that  there  was  no  one  else  available. 

The  young  man  Yamauchi  had  chosen  wasn't  from  any  of  the 
engineering  groups;  in  fact,  he  wasn't  even  an  engineer,  but  he  had 
enthusiasm  and  some  interesting  ideas  about  the  ways  video  games 
should  be  designed. 

When  Yamauchi  so  informed  Arakawa,  his  son-in-law  fumed. 
He  needed  a  superior  game  to  save  the  business  and  Yamauchi  had 
put  an  inexperienced  apprentice  on  the  job!  Why  had  Yamauchi 
seduced  him  into  going  to  America  if  he  was  going  to  sabotage  the 
operation?  But  there  was  nothing  Mino  could  do,  and  he  weakly 
asked  his  father-in-law,  "What  is  this  apprentice's  name?" 

Yamauchi  answered,  "Sigeru  Miyamoto." 


\ 


FDR  A  FISTFUL  \ 

OF  QUARTERS  ^ 


The  Nintendo  employees  Arakawa  took  to  Seattle  with  him  from 
New  York  waited  for  the  new  game.  The  team  included  a  service 
manager,  a  technician,  and  a  secretary.  To  manage  the  warehouse 
Mino  hired  a  friend  of  Ron  Judy  and  Al  Stone. 

Don  James,  a  stocky  man  with  large  arms  and  a  thick  mustache, 
grew  up  in  Seattle  and  studied  industrial  design  at  the  University 
of  Washington.  After  graduating,  he  went  to  work  for  Far  East 
Video.  At  Nintendo,  his  first  job  was  to  prepare  the  warehouse  to 
receive  the  two  thousand  "Radarscopes"  from  New  Jersey. 
Arakawa  gave  him  permission  to  hire  an  assistant.  The  help- 
wanted  ad  in  the  Seattle  Times  read:  "Have  Fun  and  Play  Games 
for  a  Living." 

Tventy-year-old  Howard  Phillips,  who  looked  remarkably  like 
Howdy  Doody  with  a  Charles  Manson  beard,  applied.  He  had 
wavy  orange  hair,  freckles,  cobalt-blue  eyes,  and  a  goofy  grin.  Phil- 
lips, though  originally  from  Pittsburgh,  had  grown  up  in  Seattle, 


GAME    OVER 


where  his  father  worked  for  Boeing.  Howard  had  attended  gram- 
mar school  with  Bill  Gates,  who  went  on  to  found  Microsoft.  They 
had  been  in  the  same  carpool. 

Outside  school,  Phillips  employed  his  ample  imagination  in  in- 
ventions. He  made  Frisbee  shooters  out  of  plywood,  with  a  large 
rubber  band  and  a  clothespin  for  a  trigger.  He  also  made  an  enor- 
mous catapult  that  launched  large  rocks  at  passing  cars. 

Phillips  had  started  playing  video  games  when  the  first  home 
systems  were  released  in  America.  "I  was  the  smallest  kid  on  the 
block,  so  I  was  very  competitive,"  he  says.  "I  wanted  to  show 
my  stuff  and  present  myself  as  an  equal."  Atari's  "Pong"  and 
Magnavox's  Odyssey  were  black-and-white  tennis  games.  "The 
games  got  boring  pretty  quickly,  but  it  was  compelling  because  you 
could  actually  control  something  on  your  TV." 

Then  Phillips  created  his  own  game  with  a  motor  from  an  old 
clock,  a  discarded  lamp,  and  circular  Band- Aids  stuck  onto  a  globe 
(for  targets).  Electronic  toys  and  computer  games  were  just  a  bet- 
ter way  of  playing,  he  felt.  "You  didn't  have  to  spend  all  the  time 
setting  up  your  army  men  each  time,"  he  said.  The  computer  did  it 
for  you. 

After  college,  Phillips  was  working  at  the  Seattle  shipyards 
painting  boats  when  he  saw  the  ad  in  the  Times.  After  meeting 
Don  James  and  Arakawa,  he  started  work  immediately  at  Nin- 
tendo. The  ad,  he  quickly  learned,  had  been  misleading.  The  job 
wasn't  as  much  playing  games  as  lugging,  crating,  uncrating,  assem- 
bling, loading,  and  delivering  them — on  occasion,  in  his  own  '68 
Buick  Wildcat  convertible.  The  machines  weighed  several  hundred 
pounds  each. 

The  shipment  of  "Radarscopes"  arrived  by  the  truckload  from 
the  train  station  after  their  cross-country  journey.  Phillips  excitedly 
uncrated  a  game,  plugged  it  in,  and  stood  before  the  console.  "It 
was  like  when  a  car  dealer  gets  in  a  new  car,"  he  says.  "I  would  test 
'em  out,  drive  'em." 

Arakawa  watched  him.  "It  was  like  he  was  sleepwalking,"  he 
says.  Phillips  was  disappointed  with  "Radarscope."  "It's  hopeless," 
he  said.  He  joined  the  other  Nintendo  employees  who  were  wait- 
ing for  the  new  game  to  arrive  from  Japan. 

One  day  a  courier  delivered  a  package  that  had  arrived  by  air 


FOR    A    FISTFUL   OF    QUARTERS  1Q9 

from  Kyoto.  Don  James  signed  for  it  and  delivered  the  small  box  to 
Arakawa.  He  opened  it  and  saw  the  board  that  contained  the  new 
game's  program.  As  the  service  technician  installed  it  in  a  console, 
Arakawa  called  in  Judy  and  Stone.  They  watched  as  the  power  was 
turned  on.  The  opening  screen  announced  the  game:  "DONKEY 
KONG." 

They  looked  at  one  another.  Stone  swore.  He  and  Judy  tried  the 
game  and  concluded  that  it  was  a  disaster.  TWo  thousand  "Donkey 
Kongs"  were  worse  than  two  thousand  "Radarscopes."  Al  Stone 
walked  out.  "It's  over,"  he  said. 

Arakawa  worriedly  complained  to  Yamauchi,  who  was  thor- 
oughly unsympathetic.  He  implored  Yamauchi  at  least  to  change 
the  name,  but  Yamauchi  refused.  "It  is  a  good  game,"  he  said. 

Arakawa  had  no  choice  but  to  attempt  to  sell  it.  Judy  reluctantly 
agreed  to  try,  and  he  convinced  Stone  to  cooperate.  There  was  one 
promising  sign:  when  the  new  flame-haired  kid  in  the  warehouse, 
Howard  Phillips,  test-drove  "Donkey  Kong,"  they  had  to  pry  him 
off  it  to  get  him  back  to  work. 

Before  NCL  could  begin  mass-producing  the  game  boards,  the 
American  team  had  to  provide  an  English  text  in  place  of  the 
Japanese  in  the  introductory  storyline,  which  flashed  on  the  screen 
at  the  start  of  a  game. 

The  NOA  staff  gathered  in  a  corner  of  the  warehouse  around  a 
couple  of  card  tables.  They  came  up  with  a  simple  translation  of 
Miyamoto's  story  and  they  had  to  name  the  characters.  Arakawa 
christened  the  princess  Pauline,  after  James's  wife,  Polly.  They 
were  trying  to  decide  what  to  call  the  rotund,  red-capped  carpen- 
ter, when  there  was  a  knock  on  the  door. 

Arakawa  answered  it.  Standing  there  was  the  owner  of  the  ware- 
house. In  front  of  everyone,  he  blasted  Arakawa  because  the  rent 
was  late.  Flustered,  Arakawa  promised  that  the  money  was  forth- 
coming, and  the  man  left. 

The  landlord's  name  was  Mario  Segali.  "Mario,"  they  decided. 
"Super  Mario!" 

The  Spot  Tavern,  near  Nintendo's  office,  was  a  small,  darkly  lit 
hangout  that  served  greasy  hamburgers,  excellent  french  fries,  and 
draft  beer  in  tall  glasses.  In  a  back  corner  was  a  pinball  machine. 


GAME    OVER 


Ron  Judy  convinced  the  tavern's  owner  to  allow  him  to  set  up  a 
"Donkey  Kong"  game.  The  next  morning  he  wheeled  a  console  in 
on  a  dolly,  set  it  down  next  to  the  pinball  machine,  and  plugged 
it  in. 

He  didn't  expect  much  when  he  returned  that  night  to  check  the 
cash  box.  But  there  were  120  quarters  inside,  $30,  a  phenomenal 
amount. 

Judy  assumed  it  was  an  aberration.  He  checked  around  10:00 
p.m.  the  second  day  and  found  $35.  The  next  day  there  was  $36. 
The  Spot's  owner  was  happy  to  have  more  "Donkey  Kongs"  deliv- 
ered. His  bar  was  packed  with  people  lined  up  to  play  Sigeru 
Miyamoto's  first  game. 

The  NOA  team,  especially  Stone,  hated  to  admit  that  Yamauchi 
had  been  right,  but  Arakawa  was  greatly  relieved. 

The  components — the  mother  board,  power  supply,  and  unas- 
sembled cabinets — arrived  from  Japan.  Arakawa,  James,  Phillips, 
Judy,  Stone,  Yoko  Arakawa,  and  virtually  all  the  other  employees 
assembled  consoles  throughout  long  days  and  nights.  Completed 
games  were  crated  and  loaded  onto  trucks,  which  headed  out  to 
cities  throughout  America.  Nintendo  had  a  hit  on  its  hands. 

Nintendo  of  America  had  its  first  company  Christmas  party  at  a 
restaurant  near  the  warehouse.  All  of  the  dozen  founding  employ- 
ees attended.  The  centerpiece  of  the  party  was  a  sculpture  of  Don- 
key Kong  made  out  of  fifty  pounds  of  butter  covered  with  shredded 
coconut.  Afterward,  the  sculpture  was  dried  out,  shellacked,  and 
hung  from  a  rafter  in  the  warehouse,  from  which  it  watched  over 
the  Nintendo  crew  until  it  turned  green  with  mold. 

"Donkey  Kong's"  popularity  grew,  and  Taito,  the  Japanese  com- 
pany behind  "Space  Invaders,"  offered  to  buy  all  rights  to  the 
game  for  an  exorbitant  sum.  Almost  everyone  associated  with 
Arakawa  counseled  him  to  take  the  money. 

Arakawa  pondered  the  offer  for  days  and  called  Yamauchi  to 
discuss  it  with  him.  Yamauchi  felt  that  a  large  advance  in  hand  was 
better  than  profits  they  might  never  see,  but  he  said  he  would  back 
Arakawa  in  any  decision.  Arakawa  told  Taito  the  rights  weren't  for 
sale.  In  Kyoto,  Yamauchi  told  Hiroshi  Imanishi,  "Arakawa  insists, 
so  okay.  We  will  see  if  it  is  a  mistake." 


FOR    A    FISTFUL    OF    QUARTERS  111 

All  two  thousand  "Donkey  Kongs"  sold.  The  NOA  staff  was 
astonished.  Arakawa  called  Yamauchi  and  placed  orders  for  thou- 
sands more. 

Arakawa  enlarged  his  staff,  hiring  salesmen  and  service  techni- 
cians. Don  James  hired  twenty-five  people  to  assemble  and  test 
games.  When  they  were  ready,  serial  numbers  were  affixed  and 
they  were  packaged  and  shipped.  Fifty  games  went  out  each  day. 
To  increase  production  James  began  to  purchase  control  panels, 
cabinets,  graphics  controllers,  and  monitors  from  local  sources. 
His  staff,  which  grew  to  include  most  of  Nintendo's  125  employees, 
were  building  up  to  250  game  machines  a  day. 

Sixty  thousand  more  "Donkey  Kongs"  were  sold,  and  Nintendo 
of  America's  second  year  ended  with  more  than  $100  million  in 
sales.  The  Arakawas  realized  they  might  be  in  Seattle  for  some 
time,  so  they  bought  the  house  they  had  been  renting  in  quiet, 
peaceful  Bellevue.  Yoko  took  up  tennis,  and  she  dragged  Mino 
onto  the  golf  course. 

Judy  and  Stone  were  having  a  good  1981  too.  Their  accountant 
called  Howard  Lincoln  to  tell  him  they  had  to  form  corporations 
for  their  clients.  Lincoln  thought  it  was  a  joke.  "They're  half  bank- 
rupt, what  are  you  talking  about?"  he  asked.  The  accountant  ex- 
plained that  a  Nintendo  video  game  was  selling  like  mad.  Stone 
and  Judy  were  making  a  fortune. 

Lincoln  formed  Ron  Judy  Inc.  and  Al  Stone  Inc.  and,  with  the 
accountant,  closed  the  companies'  first  fiscal  year.  Stone  says  they 
each  made  in  excess  of  $1  million. 

That  same  year,  Atari  and  Mattel  were  battling  for  the  home 
video-game  market  in  America.  Coleco,  which  began  in  1932  mak- 
ing swimming  pools,  went  up  against  them  with  a  system  called 
ColecoVision.  All  three  companies  wanted  the  exclusive  rights  to 
create  a  version  of  "Donkey  Kong"  that  would  play  on  their  sys- 
tem. Atari  and  Mattel  contacted  Arakawa,  but  Coleco  went  di- 
rectly to  Yamauchi  in  Japan,  who  decided  that  Nintendo  should 
work  with  the  company  with  the  most  at  stake.  He  told  Arakawa  a 
deal  should  be  made  with  Coleco.  "It  is  the  hungriest  company," 
he  said. 

Before  he  could  sell  the  rights,  Arakawa  needed  a  lawyer  to 


GAME    OVER 


trademark  the  "Donkey  Kong"  name  and  copyright  the  game,  so 
Ron  Judy  introduced  him  to  Howard  Lincoln.  Lincoln  had  never 
done  this  kind  of  work  and  had  no  idea  where  to  begin.  He  told 
Arakawa,  "No  problem."  It  was,  he  says,  "a  typical  lawyer  re- 
sponse. You  never  tell  a  client  that  you  don't  know  what  you're 
doing." 

Once  "Donkey  Kong"  was  legally  protected,  Lincoln  helped  put 
together  the  deal  with  Coleco  in  1981.  He  used  a  legal  form  book 
and  prepared  an  agreement.  When  Arakawa  went  over  it,  he  asked 
why  Nintendo  had  to  warrant  that  they  owned  any  of  the  rights  to 
the  game.  Lincoln  explained  that  it  was  just  the  way  it  was  done. 
Arakawa  asked  again.  "But  why  do  /  have  to  do  it?" 

Lincoln  shrugged.  "I  guess  you  don't  have  to." 

Lincoln  had  Nintendo  disclaim  any  warrant  about  ownership, 
and  he  noted  in  the  contract  that  Coleco  assumed  the  entire  risk. 
There  was  no  practical  reason  for  Arakawa  to  change  this  provi- 
sion other  than  his  instinctive  way  of  doing  business:  Never  give 
anything  away  that  you  don't  have  to.  "I  knew  Nintendo  owned  the 
game,  but  I  figured,  What  the  hell,  might  as  well  be  bold,"  Lincoln 
says.  Taking  his  cue  from  his  client,  Lincoln  skewed  the  rest  of  the 
contract  to  favor  Nintendo,  "mostly  because  we  didn't  know  how 
things  were  normally  done,"  he  says. 

The  agreement  between  Nintendo  and  Coleco  was  to  be  signed 
before  the  end  of  the  year,  and  Lincoln  spent  most  of  the  night  of 
Christmas  Eve  1981  completing  it.  On  Christmas  Day  he  sent  it  to 
Arakawa  for  his  signature.  Arakawa  hurried  it  to  Japan  for 
Yamauchi  to  sign  with  a  representative  of  Coleco,  who  had  been 
sent  to  Kyoto  to  nail  down  the  deal. 

When  they  met  at  NCL,  the  Coleco  executive  told  Yamauchi 
that  he  would  take  the  contract  back  to  America  to  have  the  com- 
pany's attorney  check  it  over  and  return  it  signed.  Yamauchi  re- 
fused, saying,  "You  must  sign  it  now,  or  we  are  going  to  go  with 
someone  else."  The  man  froze.  He  had  no  choice.  Nervously,  he 
signed  the  agreement. 

Meanwhile,  Nintendo  had  outgrown  the  warehouse  at  Segali 
Business  Park,  and  Arakawa  wanted  to  move  to  a  larger  and  better 
location.  Another  manager  would  have  been  more  cautious.  One 
successful  video  game  in  that  volatile  business  did  not  necessarily 


FOR    A    FISTFUL   OF    QUARTERS  1   13 

mean  there  would  be  more.  Arakawa,  however,  viewed  "Donkey 
Kong"  as  the  break  he  needed,  just  the  beginning.  With  Phil  Rog- 
ers he  went  looking  at  real  estate  east  of  Seattle,  amid  the  rolling 
hills  of  Redmond  and  Bellevue  where  high-technology  companies 
had  sprung  up  the  way  redwoods  and  fir  trees  once  did.  Set  be- 
tween lakes  Washington  and  Sammamish,  they  were  small  logging 
towns  before  the  1920s,  when  the  countryside  had  already  been 
scalped  of  timber.  The  communities  dependent  on  logging  became 
pleasant  bedroom  communities  surrounded  by  the  beautiful  lakes, 
protected  woods,  and  meadows.  Redmond's  chamber  of  commerce 
was  proud  of  the  community's  designation  as  the  Bicycle  Capital  of 
the  Northwest  before  it  was  discovered  by  the  high-technology 
industry.  (Since  then  the  chamber  boasts  that  Redmond  is  the  City 
of  Opportunity.) 

Microsoft,  which  sprawled  out  in  dozens  of  beige  buildings  at 
the  Ninth  Avenue  NW  exit  off  mall-lined  Route  508,  called  its 
Redmond  plant  a  "campus,"  which  fooled  no  one.  Microsoft  was 
hardly  distinguishable  from  the  other  electronics  and  aviation 
companies  in  the  area— from  Data  I/O  and  Rocket  Research  to 
Sundstrand  Data  Control  and,  along  the  road  to  the  Seattle- 
Tacoma  airport,  Boeing. 

Arakawa  invested  "Donkey  Kong"  profits  in  twenty-seven  (and 
later,  an  additional  thirty-three)  acres  of  cleared  and  plowed  Red- 
mond land.  He  paid  cash  and  the  deal  was  closed  in  July  1982.  By 
then  he  talked  Phil  Rogers  into  joining  Nintendo  full  time.  Rogers 
said  he  wanted  to  be  a  vice-president.  When  Arakawa  balked, 
Rogers  said,  "Don't  worry  about  the  title;  everybody  is  a  vice- 
president  in  the  United  States." 

Arakawa  said  he  would  talk  to  Howard  Lincoln,  who  advised 
against  it,  and  Rogers  was  persuaded  to  accept  the  title  of  director 
of  real  estate.  His  first  job  was  to  oversee  the  construction  of  the 
first  of  several  Nintendo  corporate  buildings— three-layer  rectan- 
gles, like  high-tech  sheet  cakes.  Eventually  he  also  bought  125 
acres  in  nearby  North  Bend  for  a  larger  new  warehouse,  as  well  as 
several  small  parcels  in  Seattle. 

The  first  building  was  ready  in  November  1982.  By  the  time  the 
additional  warehouse  and  production  buildings  were  completed 
and  the  warehouse  at  Mario  Segali's  industrial  park  was  vacated, 


GAME    OVER 


Rogers  was  Nintendo's  director  of  product  development  and  man- 
ufacturing. Six  months  later  he  became  vice-president  of  opera- 
tions. 

Rogers  worked  with  Don  James  to  design  a  production  system  to 
build  video  games  more  efficiently.  After  "Donkey  Kong"  there 
were  "Donkey  Kong  Jr.,"  "Popeye,"  "Punch-Out"  (later  intro- 
duced as  "Mike  Tyson's  Punch-Out!"  as  a  home  video  game  when 
an  endorsement  deal  with  the  heavyweight  champ  was  negotiated), 
and  then  a  new  kind  of  arcade  game  designed  by  Nintendo  Japan. 
Called  the  VS  System  ("VS"  for  versus),  it  was  a  console  video- 
game system  that  had  two  monitors,  side  by  side,  with  two  play 
options:  you  versus  the  machine  or  you  versus  another  player.  The 
first  VS  game  was  a  baseball  game.  Four  kids  held  on  to  joysticks 
and  controlled  pitching,  batting,  and  fielding. 

Arakawa  came  up  with  another  system  that  Genyo  Takeda's 
R&D  3  developed  for  him  in  Japan.  This  new  arcade  machine, 
dubbed  Play  Choice,  had  ten  games  to  choose  from.  The  selection 
of  games  could  be  changed  by  removing  a  panel  and  replacing  a 
circuit  board.  It  was  similar  to  a  jukebox;  the  machine  stayed  the 
same,  only  the  records  changed.  McDonald's  restaurants  founder 
Ray  Kroc  had  once  forbidden  video  games  from  the  golden  arches, 
but  when  he  died  Play  Choice  systems  were  set  up  in  various  Big 
Mac  franchises  in  Florida. 

Income  from  "Donkey  Kong"  poured  in.  There  were  tertiary 
licensing  agreements  of  the  "Donkey  Kong"  character  (a  cartoon 
show,  pajamas,  and  the  like),  as  well  as  spin-off  versions  of  the 
game. 

As  the  arcade  games  continued  to  sell  well  in  early  1982, 
Arakawa  asked  Phil  Rogers  to  accompany  a  friend  of  his,  Peter 
Main — his  former  neighbor  from  Vancouver,  who  knew  the  restau- 
rant business — on  a  visit  to  the  corporate  headquarters  of  Chuck 
E.  Cheese  Pizza  Time  Theater.  Chuck  E.  Cheese  was  a  California- 
based  chain  of  restaurants  started  by  Nolan  Bushnell,  the  man  who 
had  invented  the  first  commercial  video  game  and  the  founder  of 
Atari.  Pizza  Time  Theater  was  a  combination  entertainment  center 
and  restaurant.  Families  waiting  for  their  pizzas  would  be  enter- 
tained by  stage  shows  performed  by  robotic  stuffed  animals  and  by 
the  latest  video  games,  which  conveniently  lined  the  walls. 


FOR    A    Fl  STFU  L    OF    QUARTERS  115 


NCL  was  interested  in  acquiring  the  rights  to  open  Chuck  E. 
Cheeses  in  Japan.  It  was  a  logical  move  for  Yamauchi,  who  saw 
that  Chuck  E.  Cheeses  would,  like  his  Laser  Clay  ranges,  be  an 
entertainment  center  where  he  could  place  Nintendo's  technology. 
He  would  make  money  selling  pizza,  too.  Arakawa  was  interested 
in  Chuck  E.  Cheese  franchises  as  well.  Besides  the  other  benefits, 
Nintendo-owned  arcades  could  serve  as  testing  centers  for  new 
games. 

Rogers  and  Main  arrived  at  the  company's  headquarters  in  Sun- 
nyvale and  noticed  that  the  parking  lot  was  full  of  Porsches  and 
Mercedeses.  Above  the  receptionist's  desk  was  the  smiling  face  of 
Chuck  E.  Cheese,  the  company's  mascot— a  rat.  Below  Chuck  was 
an  electronic  sign  that  announced,  in  gleaming  red  neon,  the  price 
at  which  the  company's  stock  was  currently  being  traded. 

Rogers  and  Main  spent  the  day  meeting  with  various  executives 
(founder  Nolan  Bushnell  was  nowhere  to  be  seen).  One,  in  charge 
of  the  restaurant  operation,  said  she  was  working  on  improving  the 
quality  of  the  pizza  crust.  All  the  others  they  met  seemed  obsessed 
with  robotics,  global  conquest,  and  the  value  of  the  company's 
ascending  stock. 

When  the  two  men  returned  to  Seattle,  they  warned  Arakawa 
that  the  Chuck  E.  Cheese  people  didn't  know  what  they  were 
doing.  Main  said  that  under  its  current  management  Chuck  E. 
Cheese  didn't  have  much  chance  of  surviving. 

Over  a  series  of  meetings,  Arakawa  investigated  franchising 
Chuck  E.  Cheeses  that  he  would  manage  independent  of  the  Sun- 
nyvale organization.  Yamauchi,  meanwhile,  concluded  that  the 
large  Pizza  Time  Theaters  were  impractical  for  Japan,  where 
square  footage  was  extremely  expensive. 

Arakawa  went  ahead  and  secured  the  franchise  rights  to  open  a 
Chuck  E.  Cheese  in  British  Columbia  (the  Seattle  rights  had  been 
sold).  Rogers  found  a  location  near  Vancouver  on  a  busy  thor- 
oughfare, and  in  1983  Nintendo  opened  the  doors  to  20,000  square 
feet  of  furry  robots,  video  games,  and  pizza-making  equipment. 
Out  front  was  a  huge  Chuck  E.  Cheese  rat. 

Nintendo's  Chuck  E.  Cheese  did  exceedingly  well,  bringing  in 
$3  million  in  gross  sales  and  $700,000  in  profits  its  first  year.  Phil 
Rogers  was  looking  into  opening  a  second  Chuck  E.  Cheese  just 


GAME    OVER 


when  it  was  announced  that  Nolan  Bushnell  had  resigned  from  the 
company,  which  was  on  its  way  to  bankruptcy. 

No  other  Chuck  E.  Cheeses  were  opened  by  Nintendo,  but 
Arakawa  liked  the  restaurant  business.  Advised  by  Peter  Main,  he 
opened  two  other  Vancouver  restaurants,  Salmon  House  on  the 
Hill,  and  Horizons,  both  of  which  featured  fresh  fish,  thick  steaks, 
and  great  views.  Yamauchi  felt  the  restaurants  were  a  distraction. 
He  warned  Arakawa:  "You  cannot  look  forward  if  you  are  looking 
left  and  right." 

By  1982,  Howard  Lincoln  found  himself  occupied  almost  exclu- 
sively with  Nintendo-related  matters.  He  was  asked  to  draw  up  a 
new  contract  between  Nintendo  and  Al  Stone  and  Ron  Judy  and  ' 
terminate  their  past  agreement.  Judy  was  becoming  Nintendo's 
vice-president  of  marketing  and  Stone  its  vice-president  of 
sales. 

Next  Lincoln  was  asked  to  work  with  Nintendo  to  do  something 
about  the  extraordinary  number  of  counterfeit  "Donkey  Kong" 
games  on  the  market — as  many  as  half  the  games  sold  were  coun- 
terfeit. 

Lincoln  and  his  staff  went  after  the  counterfeiters  and  their 
customers,  employing  detectives  and  cooperating  with  police  and 
customs  officers  throughout  the  country.  One  distributor  in  Texas 
who  dealt  in  phony  Nintendo  games  disappeared,  but  many  others 
were  brought  to  court.  Organized-crime  connections  were  never 
concretely  proved  in  any  of  the  cases,  but  one  prosecutor  insisted 
that  the  distribution  of  the  illegal  games  never  could  have  become 
such  a  large  business  without  the  mob. 

When  Lincoln's  team  of  lawyers  tracked  down  a  source  of  boot- 
leg games,  they  would  get  U.S.  marshals  to  raid  the  offenders, 
court  orders  in  hand.  Many  thousands  of  mother  boards  and  cabi- 
nets were  confiscated. 

Nintendo  litigated  thirty-five  copyright  infringement  suits 
against  individuals  and  companies  selling  counterfeit  "Donkey 
Kong"  games,  but  in  spite  of  all  the  efforts,  the  company  lost  at 
least  $100  million  in  potential  sales  because  of  counterfeiters. 

While  planning  legal  strategies,  Lincoln  and  Arakawa  spent  a 
great  deal  of  time  together,  consulting  at  each  other's  offices  or,  on 


FOR    A    FISTFUL    OF    QUARTERS  1   1  "7 


occasion,  on  airplanes,  flying  between  Seattle  and  Japan  and 
throughout  America.  In  Seattle,  Mino  and  Yoko  frequently  dined 
with  Howard  and  Grace  Lincoln.  These  evenings,  though  ostensi- 
bly social,  inevitably  turned  to  Nintendo  business. 

One  late  night  in  April  1982,  Arakawa  called  Lincoln  at  home. 
There  was  an  unusual  urgency  in  his  voice.  Arakawa  explained  that 
his  father-in-law  had  just  called  from  Kyoto,  where  it  was  early 
morning.  A  telex  had  arrived  at  NCL  from  Sidney  Sheinberg  of 
MCA  Universal,  the  huge  entertainment  conglomerate.  The  telex 
was  short  and  direct.  It  said  that  Yamauchi  had  forty-eight  hours  to 
turn  over  all  of  Nintendo's  profits  from  "Donkey  Kong"  and  to 
destroy  any  unsold  games.  The  game,  MCA  claimed,  was  an  in- 
fringement on  a  Universal  Studios  copyright— for  the  movie  King 
Kong. 

The  telex  was  ominous.  Just  as  Nintendo  of  America  was  finally 
succeeding,  here  was  a  threat  from  one  of  the  most  litigious,  hos- 
tile men  in  the  entertainment  business.  Sheinberg,  MCA's  indomi- 
table president,  second  in  that  organization  only  to  chairman  and 
CEO  Lew  Wasserman,  was  an  attorney  who  was  known  to  work,  as 
one  colleague  put  it,  "like  a  python,  strangling  his  prey  before 
devouring  it." 

After  a  sleepless  night,  Arakawa  and  Lincoln  headed  to  their 
respective  offices  and  consulted  on  the  telephone.  There  was  every 
reason  to  believe  that  MCA,  with  its  enormous  clout  and  bank 
account,  could  crush  a  relatively  small,  foreign-owned  company 
like  NOA.  Why,  Arakawa  wondered,  hadn't  anyone  considered 
that  "Donkey  Kong"  might  infringe  on  the  King  Kong  copyright? 
Lincoln  tried  to  reassure  him.  He  explained  that  the  threat  from 
MCA  wasn't  unusual  in  business,  and  it  certainly  didn't  mean  that 
Nintendo  was  in  the  wrong.  If  nothing  else,  it  was  undeniable  proof 
that  Nintendo  had  made  it  into  the  big  time. 

After  a  week  or  so  of  frantic  research,  Arakawa  and  Lincoln 
prepared  to  leave  for  Los  Angeles  for  a  meeting  with  the  MCA 
brass.  The  pair  arrived  in  L.A.  and  headed  for  Universal's  main 
office  building,  known  as  the  "black  tower"  (appropriately  forbid- 
ding, the  two  felt),  in  Universal  City.  Bob  Hadl,  an  MCA  attorney, 
escorted  the  men  into  an  elaborate  office  crowded  with  antiques 
and  expensive  artwork.  There  was  a  sweeping  view  of  the  smog. 


1   1B  GAME    OVER 


Also  present  were  two  attorneys  from  Coleco,  MCA's  in-house 
attorney,  and  an  outside  counsel.  Coleco,  which  had  invested  a 
fortune  in  its  impending  launch  of  the  ColecoVision  system,  which 
would  include  a  home  version  of  "Donkey  Kong,"  had  apparently 
received  the  same  threatening  letter. 

Hadl  and  another  MCA  attorney  explained  their  boss's  position: 
Sheinberg  planned  to  sue  and  immediately  seek  a  preliminary  in- 
junction that  would  stop  both  Nintendo  and  Coleco  from  selling 
any  games  while  the  litigation  continued.  There  was  only  one  alter- 
native: Nintendo  and  Coleco  had  to  settle. 

It  was  expected,  but  chilling  nonetheless.  Coleco  had  virtually 
bet  the  store  on  "Donkey  Kong."  For  Nintendo,  "Donkey  Kong" 
was  the  store. 

MCA's  lawyer  waited  for  a  response.  Lincoln  spoke  first.  "If  you 
own  King  Kong  and  it  is  infringed  by  'Donkey  Kong,'  then  we'll 
settle,"  he  said.  "But  I'm  not  going  to  buy  the  goddamn  Brooklyn 
Bridge.  First  you'll  have  to  prove  to  me  that  you  own  King  Kong." 

There  was  silence.  The  MCA  team  looked  at  him  and  Arakawa 
as  if  they  were  Martians,  Lincoln  recalls— "Like,  come  on,  what 
are  you  smoking?" 

There  was  lawyerly  huffing  and  puffing  and  large  bodies  fidget- 
ing in  uncomfortable  chairs  until  the  MCA  outside  counsel  spoke. 
"Of  course  we  own  it,"  the  lawyer  said. 

He  was  back  on  the  offensive,  listing  everything  that  MCA  was 
going  to  go  after:  royalties,  inventory,  damages.  ...  He  sug- 
gested that  the  Nintendo  and  Coleco  representatives  discuss  their 
course  of  action  in  privacy.  Before  the  others  adjourned  to  a  pri- 
vate conference  room,  MCA's  attorney  told  Lincoln  that  the  only 
way  to  avoid  a  lawsuit  was  a  settlement.  "You  don't  have  a  chance 
in  court,"  he  said. 

When  the  lawyers  and  Arakawa  were  alone,  the  Coleco  team 
said  they  agreed;  there  was  no  alternative  but  to  acquiesce.  "What 
else  can  we  do?"  they  said.  "The  gorillas  look  the  same,  the  name 
is  almost  the  same  .  .  ."They  attempted  to  convince  Arakawa 
and  Lincoln  to  settle,  never  letting  on  that  they  already  had. 
Coleco,  terrified  of  MCA  and  looking  to  appease  Sid  Sheinberg, 
who  had  dangled  the  possibility  of  investing  in  their  company,  had 
promised  to  try  to  convince  Nintendo  to  settle  too.  "Sid  Sheinberg 


FOR    A    FISTFUL   OF    QUARTERS  113 

had  put  the  screws  to  Coleco's  CEO,  Arnold  Greenberg,"  said 
Howard  Lincoln.  "He  told  him  to  get  Nintendo  to  settle  up." 

MCA  also  went  after  other  companies  to  which  Nintendo  had 
licensed  "Donkey  Kong."  By  then  Atari  was  selling  a  "Donkey 
Kong"  computer  game,  and  MCA  was  also  pressuring  Atari's  par- 
ent company,  Warner  Communications.  Sheinberg  personally 
threatened  Warner  CEO  Steve  Ross.  "I  told  him  ...  I  didn't 
want  to  be  in  the  position  of  suing  him,"  Sheinberg  says.  Ralston 
Purina,  which  had  licensed  the  "Donkey  Kong"  character  for  a 
breakfast  cereal,  responded  to  Sheinberg's  threat  by  offering  a 
$5,000  settlement.  This  incensed  Sheinberg.  "It's  the  most  stupid 
thing  I  ever  heard  of,"  he  said.  "Throw  them  out  of  the  building." 
Thereafter  Ralston  Purina  refused  to  settle,  as  did  Milton  Bradley, 
which  had  a  "Donkey  Kong"  board  game. 

In  the  meeting  in  the  black  tower,  Coleco's  lawyers  never  so 
much  as  intimated  that  they  had  cut  a  deal  with  MCA.  All  they  said 
was,  "There  is  no  alternative  to  settling."  Lincoln  listened  intently 
and  never  let  on  that  he  felt  they  were  probably  right,  that  Nin- 
tendo would  have  to  settle  (he  calculated  that  it  would  take  a 
minimum  of  $5-$7  million).  Still,  he  refused  to  agree  to  anything. 
"We  need  more  time,"  is  all  he  told  the  Coleco  team. 

They  pressed  him,  seemingly  in  panic.  Lincoln  told  them,  "You 
can  do  whatever  you  want,  since  there  was  no  warrant  about  the 
rights  you  bought  from  us." 

The  Coleco  lawyers  glared  at  him.  "We  know  that,"  one  of  them 
said.  Arakawa  glanced  over  at  Lincoln.  They  shared  a  fleeting 
moment  of  schoolboy  glee.  The  no-warrant  clause  in  the  contract 
Yamauchi  had  intimidated  Coleco  into  signing  was  paying  off. 
Even  if  they  did  have  to  settle,  Nintendo  was  not  responsible  for 
Coleco's  losses. 

As  the  men  left  the  room,  Lincoln  tugged  Arakawa's  arm.  They 
slowed  up  and  Lincoln  whispered,  "Something's  going  on."  The 
reaction  to  his  crack  about  the  Brooklyn  Bridge  made  him  wonder 
if  MCA  actually  did  own  King  Kong.  "Don't  agree  to  anything,"  he 
said. 

Back  in  Hadl's  office,  the  Coleco  attorneys  excused  themselves, 
saying  they  would  meet  alone  with  Hadl  at  another  time.  It  made 
Lincoln  suspicious.  "Something  was  wrong.  Something  was  going 


GAME    OVER 


on  between  Universal  and  Coleco,"  he  says.  He  decided  he  had 
better  buy  some  time.  "We  have  to  sort  things  out,"  Lincoln  told 
Hadl  when  he  and  Arakawa  prepared  to  leave.  Hadl  told  him  he 
had  better  not  take  too  long. 

Lincoln  and  Hadl  spoke  by  telephone  throughout  the  next 
month.  In  June,  the  MCA  attorney  said,  "You've  had  all  the  time 
you  need.  It's  time  to  meet  and  sew  things  up."  Lincoln  said  he  was 
ready  and  he  and  Arakawa  planned  to  return  to  Universal  City. 

The  morning  the  pair  left  for  the  Seattle  airport,  Arakawa  was 
running  a  fever,  fighting  off  the  flu.  He  asked  Lincoln  if  he  was 
really  needed.  Lincoln  insisted.  Under  no  conditions  would  he  do 
this  alone. 

They  flew  back  to  Southern  California  and  taxied  to  the  black 
tower.  Soon  after  they  met  with  Hadl,  they  were  told  that  if  they 
were  ready  to  "resolve  things"  they  should  head  down  "to  meet 
with  Mr.  Sheinberg."  Arakawa  looked  at  Lincoln,  who  said  nothing. 

They  accompanied  the  MCA  lawyer  through  the  corridors  to  the 
elevator. 

Sheinberg  had  risen  in  the  ranks  of  MCA  to  become  one  of  the 
most  powerful  movie  moguls  in  Hollywood.  MCA  was  comprised 
of  a  record  company,  a  television  production  company,  a  book 
publishing  house  (G.  P.  Putnam's  Sons),  a  retailing  division,  theme 
parks,  and  massive  real  estate  holdings.  Sheinberg  was  savvy  about 
future  technologies,  and  he  did  his  best  to  place  MCA  in  a  strate- 
gic spot  by  investing  in  them. 

Before  Nintendo  had  been  threatened,  a  meeting  was  arranged 
between  him,  MCA  chairman  Wasserman,  and  Coleco's  president. 
Arnold  Greenberg  had  big  plans  for  Coleco,  but  he  needed  vol- 
umes of  cash.  The  three  men  were  talking  about  the  possible  ac- 
quisition of— or  at  least  an  investment  in— Coleco  by  MCA  when 
Sheinberg  casually  mentioned  that  Coleco's  association  with  Nin- 
tendo was  a  stumbling  block  to  any  arrangement  they  might  make. 
"We  believe  some  rights  of  ours  are  being  violated,"  he  said. 

Greenberg  smiled  wryly  and  asked,  "What  took  you  so  long?" 

Later  Sheinberg  said  he  remembered  the  moment.  The  line,  he 
said,  was  "that  .  .  .  famous  movie  line  where  the  hero  rides  off 
into  the  sunset  and  then  somebody  always  comes  running  after 


FOR    A    FISTFUL    OF    QUARTERS  1  21 

him,  and  the  hero  turns  around  and  looks  at  the  guy  or  the  woman, 
always  John  Wayne  or  Gary  Cooper  or  somebody,  and  says,  'What 
took  you  so  long?'  and  you  do  a  fadeout."  The  message  was  clear: 
Greenberg  had  come  prepared  to  negotiate. 

A  deal  was  made.  As  leverage  to  convince  Greenberg  to  settle 
with  MCA,  Sheinberg  dangled  the  prospect  of  a  partnership  or 
some  agreement  that  would  bring  a  cash  infusion  into  Coleco. 
Coleco  could  continue  to  sell  "Donkey  Kong"  in  exchange  for  a 
modest  royalty.  "We  entered  a  covenant  not  to  sue,"  Sheinberg 
said.  "And  we  received  from  Coleco  an  agreement  that  they  would 
pay  us  3  percent  of  the  net  sales  price  [of  all  the  "Donkey  Kong" 
cartridges  Coleco  sold]."  It  turned  out  to  be  an  impressive  number 
of  cartridges,  6  million,  which  translated  into  $4.6  million.  (In  sub- 
sequent negotiations,  Sheinberg's  interest  in  Coleco  evaporated.) 

The  Coleco  negotiation  wasn't  Sheinberg's  first  attempt  to  bring 
MCA  into  the  video-game  business.  "There  was  a  point  in  time 
when  the  video-game  business  looked  like  it  was  going  to  be  the 
biggest  business  around,"  he  said.  He  wanted  MCA  to  be,  as  he 
put  it,  "a  principal"  in  video  games,  as  it  was  in  records,  movies, 
and  videocassettes.  He  formed  MCA  Video  Games  and  later 
bought  a  company  called  LJN,  makers  of  toys  and  Nintendo 
games. 

On  that  June  day  when  Arakawa  and  Lincoln  followed  Hadl  out 
of  the  black  tower,  they  walked  through  the  Universal  lot,  past 
actors  in  costumes  and  palm  trees  traveling  by  on  a  trailer.  When 
they  reached  a  long  warehouse-like  building,  Hadl  announced, 
"The  executive  dining  room,"  as  he  grandly  opened  a  side  door. 

Inside  was  one  massive  table,  tl^at  could  have  seated  dozens,  set 
for  four.  They  sat  down  and  waited.  Arakawa's  fever  worsened. 

Sidney  Sheinberg,  tall  and  lanky,  wearing  large  horn-rimmed 
glasses,  arrived  and  settled  into  his  chair.  Arakawa  was  feeling  so 
ill  that  he  felt  he  might  pass  out  when,  after  a  round  of  introduc- 
tions, an  elaborate  lunch  was  served.  There  was  interminable  small 
talk,  and  by  the  time  Sheinberg  announced  how  pleased  he  was 
that  Nintendo  had  agreed  to  settle  the  case,  Arakawa  was  ready  to 
keel  over. 

He   looked   at   Howard   Lincoln,   who   had   been   charming 


GAME    OVER 


Sheinberg  and  Hadl  with  stories  of  video  games  and  fishing,  and 
watched  the  attorney  transform.  "It's  real  simple,"  he  said,  eyeball- 
ing  the  MCA  chief.  "We  have  done  a  lot  of  research  on  this  thing, 
looked  at  it  from  top  to  bottom,  and  we  feel  that  there  is  no 
infringement."  Firmly,  coldly,  he  said,  "We  have  no  intention  of 
settling." 

Arakawa  had  never  seen  Lincoln  this  icy,  and  he  was  shaken.  He 
had  no  idea  how  Sheinberg  would  react. 

His  face  reddening,  Sheinberg  pushed  back  his  chair,  placed  his 
hands  on  the  edge  of  the  table,  and  boomed,  "What  is  going  on 
here?"  He  took  a  deep  breath.  "I  understood  that  you  were  com- 
ing down  here  to  talk  about  a  settlement!  For  Christ's  sake,  you're 
wasting  my  time.  What  the  hell  is  going  on?" 

He  looked  toward  Hadl,  who  went  white.  Hadl  threw  a  pleading 
glance  at  Lincoln,  who  continued.  "It's  simple,"  he  said.  "I  wanted 
to  tell  you  we  aren't  going  to  settle  and  I  wanted  to  do  it  by  looking 
you  right  in  the  eyes.  That,  Mr.  Sheinberg,  is  what  I'm  doing." 

Rising  from  his  chair,  Sheinberg  said,  "I've  heard  enough.  You'll 
hear  from  our  legal  department."  He  glared  at  Lincoln.  "You  are 
making  a  major  mistake,"  he  fumed.  "I  view  litigation  as  a  profit 
center." 

The  three  men  rose,  too,  and  walked  behind  him  to  the  elevator. 
Hadl  followed  Sheinberg  in  as  Arakawa  and  Lincoln  hung  back, 
watching.  Before  the  doors  closed,  Lincoln  called  out— "Mr. 
Sheinberg?" 

Sheinberg  looked  at  him  and  grunted. 

"Have  a  nice  day,"  Lincoln  said. 

Sheinberg  kept  his  promise  and  filed  the  lawsuit  in  New  York 
State,  so  Lincoln  flew  East  to  meet  with  John  Kirby  of  Mudge, 
Rose,  Guthrie,  Alexander  and  Ferdon,  the  well-known  New  York 
law  firm.  Kirby  was  one  of  the  top  litigators  in  the  country,  and  had 
handled  antitrust  cases  for  PepsiCo  and  Warner-Lambert  and  fran- 
chise cases  for  General  Foods.  "When  I  initially  met  him,  I  wasn't 
all  that  impressed,"  Lincoln  says.  "He  was  kind  of  disheveled  look- 
ing and  out  of  sorts.  But  it  didn't  take  long  to  figure  out  that  this 
guy  was  one  hell  of  a  lawyer."  Kirby  had  a  reputation  for  vigor- 
ously defending  his  clients.  Importantly  for  Nintendo,  nothing  in- 
timidated him. 


FOR    A    FISTFUL   OF    QUARTERS  123 

Lincoln  and  Kirby  headed  to  Kyoto  to  meet  Yamauchi  and  dis- 
cuss the  case  with  him  and  other  NCL  executives.  It  was  Lincoln's 
first  meeting  with  Yamauchi,  and  he  had  heard  enough  about  the 
Nintendo  chairman  to  be  on  guard.  Inside  the  Mother  Brain  they 
inspected  each  other.  "I  have  no  liking  for  lawyers,"  Yamauchi 
said. 

Lincoln  restrained  a  smile.  "We  have  more  lawyers  in  Seattle, 
Washington,  than  you  have  in  all  of  Japan,"  he  said.  "Few  lawyers 
is  the  greatest  business  advantage  Japan  has  over  the  United 
States." 

"I  could  tell  that  he  was  a  very  strong  person  who  was  used  to 
getting  his  way,"  Lincoln  says.  "There  was  no  small  talk.  He  didn't 
waste  time." 

Yamauchi  wanted  to  know  one  thing  from  the  attorneys:  What 
must  be  done  to  guarantee  that  Nintendo  would  win  the  lawsuit? 
"We  must  win,"  he  said. 

After  interviewing  Nintendo  employees,  including  Gunpei 
Yokoi  and  Sigeru  Miyamoto,  Lincoln  and  Kirby  returned  to  the 
United  States  and  worked  with  their  respective  staffs  over  the  next 
ten  months  to  prepare  their  case.  Arakawa  was  elated  when  he 
heard  that  Lincoln's  instincts  had  proved  correct:  there  was  serious 
doubt  that  Universal  owned  the  rights  to  King  Kong.  The  company 
had  never  protected  the  King  Kong  trademark,  and  past  litigation 
seemed  to  confirm  that  King  Kong  was  in  the  public  domain.  The 
best  news  was  that  Universal  had  once  prevailed  in  litigation  by 
asserting  just  that:  that  the  name  King  Kong  was  in  the  public 
domain  and  could  not  be  trademarked. 

There  was  more.  Nintendo  discovered  that  Coleco  had  settled 
with  MCA,  and  that  Sheinberg  was  negotiating  an  investment  in 
Coleco  with  Arnold  Greenberg.  This  brought  to  light  other  moti- 
vations for  the  lawsuit.  Sheinberg  wanted  a  place  in  the  video- 
game business,  and  was  suing  the  companies  that  would  be  his 
major  competitors. 

As  the  materials  for  the  trial  were  being  assembled,  Arakawa 
asked  Yoko  one  night  if  she  thought  Howard  Lincoln  would  leave 
his  law  firm  and  come  to  work  exclusively  for  Nintendo.  Arakawa 
had  come  to  rely  on  Lincoln's  legal  skills,  but  there  was  more  to  it 
than  that.  He  had  never  found  anyone,  outside  of  his  family,  with 


124  GAME    OVER 

whom  he  felt  as  close.  He  respected  Lincoln,  professionally  and 
also  as  a  friend,  but  he  wondered  if  he  was  being  presumptuous, 
too  pushy,  or  too  eager.  Yoko  replied  that  there  was  only  one  way 
to  find  out. 

On  one  of  their  many  flights  together,  Arakawa  finally  ap- 
proached Lincoln.  He  said  he  knew  that  Lincoln  was  bored  with 
his  legal  practice  and  he  asked  him  to  come  work  with  him  at 
Nintendo. 

Betraying  no  emotion,  Lincoln  told  Arakawa  he  would  think 
about  it.  After  a  brief  deliberative  pause,  he  said  that  if  he  decided 
to  gamble  on  Nintendo,  he  wouldn't  come  aboard  as  corporate 
counsel.  He  wanted  to  help  run  the  company,  to  be  involved  in 
every  aspect  of  the  business. 

Arakawa  immediately  responded  that  this  was  exactly  what  he 
had  in  mind.  In  a  subsequent  meeting  that  lasted  no  more  than 
fifteen  minutes,  Lincoln  and  Arakawa  came  to  an  agreement.  Lin- 
coln would  come  aboard  as  Nintendo's  senior  vice-president,  and 
would  work  alongside  Arakawa  in  the  number-two  position.  At  the 
conclusion  of  the  meeting,  the  Nintendo  president  shook  Lincoln's 
hand.  "I  got  you,"  he  said. 

Lincoln  scheduled  a  meeting  with  his  partners  at  the  law  firm  on 
December  7,  at  which  he  gave  them  thirty  days'  notice. 

In  fighting  the  "Donkey  Kong"  case,  MCA  and  Nintendo  pre- 
sented evidence  and  testimony  in  the  New  York  courtroom  of  U.S. 
District  Court  Judge  Robert  W.  Sweet.  Howard  Phillips  was  called 
to  court  one  day  to  play  "Donkey  Kong"  because  John  Kirby 
wanted  to  demonstrate  that  the  game  had  nothing  to  do  with  King 
Kong.  Sigeru  Miyamoto  was  deposed  in  Kyoto.  He  recounted  how 
he  came  up  with  "Donkey  Kong,"  explaining  that  he  had  called  the 
character  King  Kong  before  naming  him  Donkey  Kong  because 
"King  Kong"  in  Japanese  was  a  generic  term  for  any  menacing 
ape. 

Kirby  also  presented  testimony  and  judgments  from  the  past 
trials  that  brought  into  question  MCA  Universal's  ownership  of 
King  Kong.  He  sought  to  prove  that  after  its  previous  trials,  MCA 
knew  it  didn't  have  those  rights,  and  that  they  had  filed  suit  against 
Nintendo  in  full  knowledge  of  this  fact. 


* FOR    A    FISTFUL   OF    QUARTERS  125 

A  strong  case  developed  so  quickly  that  Nintendo's  lawyers 
moved  for  summary  dismissal  of  the  suit,  and  Sweet  granted  it.  In 
his  written  opinion,  the  judge  described  what  appeared  to  be  his 
favorite  day  of  the  trial.  "  'Donkey  Kong,'  "  the  judge  wrote,  "was 
demonstrated  by  a  game  master  and  pertinent  parts  of  the  1933 
movie  and  the  1976  remake  were  reviewed,  an  altogether  satisfying 
court  day  enhanced  by  the  argument  of  highly  skilled  and  forceful 
counsel  and  marred  only  by  the  submission  of  affidavits,  deposi- 
tions, and  briefs." 

There  was  nothing  lighthearted  about  the  judgment  itself.  Sweet 
concluded  that  Nintendo  had  not  infringed  on  MCA  Universal's 
rights  because  the  company  didn't  own  them.  He  also  ruled  that 
there  was  no  infringement  even  if  MCA  had  owned  King  Kong, 
since  the  game  was  completely  different  from  the  movie.  The  judge 
criticized  MCA  for  bringing  the  lawsuit  in  spite  of  full  recognition 
that  it  didn't  own  the  rights,  and  this  paved  the  way  for  Nintendo 
to  be  awarded  damages. 

MCA  appealed  the  case  all  the  way  to  the  U.S.  Supreme  Court, 
and  lost  in  each  round.  At  one  stage  of  the  appeals,  Howard  Lin- 
coln was  called  to  testify.  He  pulled  out  the  notes  he  had  taken 
after  his  first  meeting  at  MCA,  when  he  said  that  Nintendo  would 
not  agree  to  buy  the  Brooklyn  Bridge.  He  detailed  the  lunch  meet- 
ing, during  which  Sid  Sheinberg  said  that  he  viewed  litigation  "as  a 
profit  center." 

When  Sheinberg  testified,  he  was  asked  to  recall  his  lunch  meet- 
ing with  Arakawa  and  Lincoln.  "I  believe  that  one  of  them  was  a 
relative  or  somehow  related  to  the  Japanese  person  who  I  under- 
stood owned  or  controlled  Nintendo,"  he  said,  dismissing 
Arakawa.  Of  Lincoln,  Sheinberg  said,  "I  believe  he  was  a  kind  of  a 
general  counsel  to  Nintendo,  but  not  one  of  great  authority,  as  it 
appeared  to  me." 

In  his  cross-examination  of  Sheinberg,  John  Kirby  earned  all  the 
money  Nintendo  was  paying  him  by  reminding  the  judge  why  MCA 
sued  in  the  first  place.  "I  gather  it's  a  pretty  big  company  you  are 
running  out  there,  Mr.  Sheinberg?"  he  asked. 

Sheinberg  nodded.  "It's  a  big  company  with  lots  of  legal  involve- 
ments." 


1  26  GAME    OVER 


Kirby  asked  about  MCA's  revenues  for  the  past  year.  When 
Sheinberg  said  they  were  in  excess  of  $1  billion,  Kirby  asked  how 
much  of  this  was  profit. 

"I  think  our  profits  were  around  $135  million.  .  .  ."  Sheinberg 
responded.  Total  sales,  Sheinberg  said,  were  $1.6  billion. 

Kirby  continued.  "What  portion  of  your  total  operating  income 
was  contributed  by  your  litigation  profit  centerT  he  asked. 

Sheinberg  eyed  him.  "By  our  litigation  profit  center?" 

The  point  was  not  lost  on  the  judge.  Kirby  continued,  asking 
Sheinberg  to  confirm  a  report  in  Business  Week  that  put  his  salary 
at  $4,638,000. 

Sheinberg's  attorney  jumped  in.  "This  is  amusing  and  all,"  he 
said,  "but  what  real  relevance  is  there  to  it?  We'll  stipulate  that 
he's  a  well-paid  executive.  Where  do  you  go  with  this  line?" 

Kirby  said  that  the  line  of  questioning  was  concluded.  He  added, 
"And  I  don't  even  think  I  need  to  make  the  argument  about  rele- 
vance in  terms  of  an  exemplary  damages  claim." 

Sheinberg's  arrogance  had,  in  the  opinion  of  several  spectators, 
infuriated  the  judge.  But  what  sank  MCA  was  the  evidence  that 
Sheinberg  had  already  instigated  and  won  a  lawsuit  proving  that 
King  Kong  was  in  the  public  domain.  MCA's  suits  (and  the  threats 
of  other  suits)  were  seen  as  MCA's  "litigation  profit  center"  at 
work. 

Nintendo  was  awarded  $1.8  million.  Months  later,  the  arrival  of 
a  big,  fat  check  from  Universal  was  followed  by  a  celebration  at 
Arakawa's  home.  Yoko  brought  out  caviar  and  champagne. 
Arakawa  and  Lincoln  toasted  each  other  and  John  Kirby,  whom 
they  would  reward  lavishly.  Soon  after  in  New  York,  they  took  the 
attorney,  his  wife,  and  some  associates  to  dinner  in  the  private 
dining  room  of  an  elegant  Manhattan  restaurant.  After  dinner  they 
presented  Kirby  with  a  framed  photograph  of  a  thirty-thousand- 
dollar,  twenty-seven-foot  sailboat.  The  boat,  Nintendo's  way  of 
saying  thank  you,  had  been  christened  Donkey  Kong  and  included, 
they  explained,  "exclusive  worldwide  rights  to  use  the  name  for 
sailboats." 

Coleco,  which  had  sold  Nintendo  out  in  its  settlement  with 
MCA,  filed  against  MCA  Universal  to  get  back  the  royalties  they 


FOR    A    FISTFUL    OF    QUARTERS  127 

had  paid.  Universal  settled.  Atari  and  the  other  companies  MCA 
had  shaken  down  were  also  paid  back. 

The  experience  did  more  than  bolster  Nintendo's  bank  accounts. 
"We  learned,"  says  Lincoln,  "that  we  could  handle  ourselves  in  the 
big  leagues.  And  we  learned  that  the  kind  of  arrogance  we  saw  at 
MCA  is  lethal." 

NOA,  strong  from  "Donkey  Kong's"  enormous  success,  headed 
cautiously  into  the  consumer  market.  NCL  sent  over  Game  & 
Watches,  which  had  sold  like  40  million  hotcakes  in  Japan  and 
Asia,  where  demand  was  never  a  problem.  In  fact,  the  demand  was 
so  great  that  all  manner  of  counterfeiters  started  making  them;  the 
cheap  imitations  being  made  all  over  Asia  were  the  problem.  Per- 
haps as  many  illegal  Game  &  Watches  were  sold  as  ones  made  by 
Nintendo. 

To  launch  the  business  in  America,  Bruce  Lowry,  a  vice-presi- 
dent at  Pioneer,  was  hired  to  run  Nintendo's  new  consumer  divi- 
sion. Just  the  idea  that  they  had  a  consumer  division  delighted 
Arakawa  and  Lincoln. 

Entering  the  consumer  and  toy  businesses  meant  learning  a  new 
industry.  At  the  Redmond  headquarters,  in  a  conference  room 
they  had  named  "Donkey  Kong,"  Lowry  tried  to  educate  his  new 
colleagues  about  the  rules  of  the  toy  business.  There  was  much  to 
do  to  prepare  them  for  their  first  trade  shows  in  January  and 
February  1983.  Don  James  worked  on  display  booths  while  Lowry 
outlined  the  steps  Nintendo  ought  to  take. 

There  was  no  dissent  when  Lowry  said  that  Nintendo  needed  an 
office  in  New  York  (they  would  rent  space  in  the  Toy  Center  build- 
ing, at  200  Fifth  Avenue).  But  when  he  explained  the  way  billing 
was  done  in  the  toy  business,  the  Nintendo  executives  balked. 

Lowry  said  that  toy  companies  expected  all  invoices  to  be  dated 
December  10.  But  Nintendo  sold  coin-operated  video  games  on 
net-thirty  terms — all  bills  were  due  in  thirty  days.  Simple. 

Lowry  explained  that  in  the  toy  business,  orders  came  in  in,  say, 
January  or  February  for  a  product  that  was  to  be  shipped  in  the 
summer.  The  toy  stores  had  the  winter  season  to  sell  it.  Then, 
finally,  they  began  to  pay  their  bills  on  December  10,  once  much  of 
the  Christmas  business  was  over. 


12B  GAME    OVER 


Howard  Lincoln  jumped  in.  "Wait  a  second!  Why  the  hell  would 
anyone  agree  to  that?  We  build  the  product  and  take  all  the  risk 
and  we  have  to  finance  this  whole  thing  and  then  sometime  in 
December  we're  going  to  get  paid — maybe?" 

Lowry  said  this  was  correct.  That  was  how  the  toy  business 
worked. 

In  1983,  Arakawa  attended  his  first  Consumer  Electronics  Show 
to  drum  up  business  for  Game  &  Watch.  At  this  crucial  trade  show 
for  businesses  from  Walkmen  to  VCRs,  a  company's  placement  in 
the  CES's  convention-center  display  rooms  says  volumes  about  its 
stature  in  the  industry.  Nintendo  was  hidden  in  a  tiny  booth  on  a 
high  floor  in  an  out-of-the-way  building.  Buyers  couldn't  have 
found  the  company's  modest  display  of  Game  &  Watches  even  if 
they  had  been  looking  for  it. 

Things  weren't  much  more  promising  at  the  Toy  Fair  the  follow- 
ing month.  The  shows  were  barometers  of  what  was  to  come;  NOA 
lost  millions  on  Game  &  Watch  in  the  United  States.  The  lessons, 
however,  were  valuable.  The  next  time  NOA  entered  the  consumer 
business,  the  Nintendo  team  was  prepared.  They  knew  never  to 
call  their  product  a  toy,  whether  or  not  it  was.  That  way  they  didn't 
have  to  offer  December  10  invoicing.  They  also  didn't  have  to  give 
mark-down  money,  which  was  another  unsettling  new  concept  for 
Howard  Lincoln. 

When  it  finally  came  time  for  a  major  chain  to  pay  its  Game  & 
Watch  bills  to  Nintendo — after  December  10,  1983 — Lincoln  re- 
ceived a  call  from  the  chain's  controller.  The  gentleman  asked  for 
mark-down  money,  and  Lincoln  didn't  know  what  he  was  talking 
about.  "You  know,  mark-down  money,"  the  man  said.  "We  still 
have  a  lot  of  those  Game  &  Watches,  you  know.  We  have  to  mark 
them  down  to  sell  them." 

"We  sold  them  to  you  and  sent  the  invoice,"  Lincoln  said.  "We 
shipped  them  to  you,  so  you  owe  us  the  money.  If  the  product 
doesn't  sell,  that's  not  my  fault.  You  took  the  risk.  You  owe  us  the 
money." 

The  man  said,  "You  may  have  learned  a  lot  of  things  in  law 
school,  but  we're  in  the  toy  business.  If  the  product  doesn't  sell, 
you  have  to  give  us  mark-down  money;  you  have  to  reduce  the 
price  so  that  we  maintain  our  margin." 


FOR    A    FISTFUL    OF    QUARTERS  129 

"You  gotta  be  nuts,"  Lincoln  said,  but  the  man  explained  that 
the  practice  was  standard.  "We're  long-term  partners,"  he  told  the 
Nintendo  manager.  "If  you  don't  want  to  give  us  mark-down 
money,  fine,  but  don't  have  your  salesmen  call  anymore."  Nin- 
tendo gave  the  mark-down  money. 

Another  lesson  Nintendo  learned  from  the  Game  &  Watch  di- 
saster was  how  not  to  make  television  commercials.  An  agency 
Nintendo  had  hired  came  up  with  a  creative  television  campaign  it 
dubbed  "the  bored  campaign."  In  one  thirty-second  spot  a  boy  was 
sick  in  bed.  The  second  after  his  mother  tucked  him  in,  he  pulled  a 
Game  &  Watch  out  from  under  his  pillow.  In  another  "bored" 
commercial,  a  young  boy  was  bored  to  tears  at  a  wedding.  He  said, 
"My  parents  brought  me  to  this  stupid  wedding  and  I'm 
bored  .  .  ."  until  he  pulled  out  his  Game  &  Watch. 

Rather  than  allow  the  agency  to  produce  the  commercial  with 
professional  actors,  Ron  Judy  and  the  marketing  group  decided  to 
cast  it.  They  thought  they  could  make  the  commercials  more  be- 
lievable by  using  nonactors.  It  was  an  expensive,  though  hysteri- 
cally funny,  mistake.  They  used  Nintendo  employees.  The 
company's  new  credit  manager,  for  instance,  a  kindly  older  woman 
who  froze  in  front  of  the  camera,  played  the  mom.  The  resulting 
ads  were  so  bad  that  television  stations  refused  to  air  them. 

Nintendo's  Game  &  Watch  business  was  dissolved  in  the  sum- 
mer of  1985.  By  then,  although  NCL  was  making  an  enormous 
amount  of  money  on  the  Famicom  in  Japan,  almost  all  of  the 
revenues  of  its  American  subsidiary  were  still  from  coin-operated 
games.  Hiroshi  Yamauchi  wanted  to  change  this  and  he  told 
Arakawa  it  was  time  to  launch  the  Famicom  in  America.  To  deter- 
mine if  it  was  feasible,  Arakawa  undertook  an  investigation  of  the 
American  home  video-game  business. 

It  was  like  surveying  a  car  wreck.  In  the  early  1980s,  companies 
such  as  Atari,  Mattel,  and  Coleco  had  been  sharing  a  multibillion- 
dollar  business.  By  the  end  of  1983,  all  that  was  left  was  the 
wreckage  of  a  devastating  crash.  The  industry  had  shrunk  to  an 
insignificant  size,  amounting  to  only  a  few  hundred  million  dollars. 
Companies  that  had  been  raking  in  the  cash  were  bankrupt.  It 
seemed  clear  that  the  American  market  just  wasn't  interested  in 
home-video  games. 


130  GAME    OVER 


Arakawa  talked  to  people  who  had  worked  in  the  home  video- 
game industry.  He  met  with  manufacturers,  wholesalers,  and  dis- 
tributors, with  buyers  for  department  stores,  discount  stores,  toy 
stores,  electronics  stores,  and  software  companies,  and  with  par- 
ents. From  everyone  he  heard  the  same  message:  the  last  thing 
anybody  wanted  to  hear  about  was  a  new  video-game  system.  Ev- 
erywhere he  went,  he  heard  one  name  over  and  over  again:  Atari. 


\     7 

REVERSAL  v\ 

OF  FORTUNE  ^ 


In  a  conference  room  of  the  Sands  Hotel  in  Las  Vegas,  in  January 
1991,  a  Mendelssohn  concerto  played  in  the  background  as  Irving 
Gould,  CEO  of  Commodore  International,  the  $900  million  com- 
puter company,  introduced  Nolan  Bushnell.  The  most  persistent 
figure  in  California's  Silicon  Valley  history,  now  forty-five  years 
old,  unfolded  his  Ichabod  Crane  frame  from  his  chair  and  lum- 
bered to  the  podium. 

Though  Bushnell  once  showed  up  at  a  top-level  meeting  of  the 
directors  of  the  company  he  founded,  Atari,  in  a  Black  Sabbath 
T-shirt  and  sneakers,  on  that  morning  in  Las  Vegas  he  wore  a  dark 
six-button  suit,  shiny  plum  tie,  and  spit-shined  English  brogues. 
His  mane — the  dark  mass  of  fusilli  hair  and  beard  that  framed  his 
face — had  grayed,  but  the  figure  at  the  podium  was  still  command- 
ing. He  adjusted  the  microphone,  placed  his  palms  on  the  lectern, 
and  began  to  evangelize. 

Bushnell,  it  was  soon  apparent,  was  on  a  new  mission,  preaching 


132  GAME    OVER 

the  gospel  of  multimedia  through  something  called  CDTV,  Com- 
modore Dynamic  Total  Vision,  the  first  available  consumer  prod- 
uct designed  for  multimedia.  Multimedia  was  the  latest  buzzword 
in  the  consumer-electronics  industry,  predicted  to  be  for  the  1990s 
what  personal  computers  were  for  the  1980s.  It  was  a  dramatic  new 
technology  that  pulled  together  the  wizardry  of  television,  personal 
computers,  compact  disks,  video  disks,  and  video  games.  Key  to  it 
was  the  ability  to  interact  with  the  programming  that  comes  into 
the  home. 

CDTV  was  a  small,  innocent-looking  black  box,  much  like  a 
VCR  machine,  that  plugged  into  an  ordinary  TV.  It  had  many  of 
the  same  capabilities  as  a  computer,  but  it  was  neither  intimidating 
nor  complicated.  It  was  operated  with  a  palm-size  remote-control 
unit.  A  half-dozen  industry  giants,  from  Philips  to  Apple,  were 
exploring  multimedia,  but  Commodore,  a  relatively  small  company 
among  high-tech  giants,  was  the  first  to  launch  a  consumer  product 
based  on  the  technology.  For  Bushnell,  it  was  not  just  new  technol- 
ogy but  a  cause.  He  explained  that  the  key  to  the  new  system  was 
the  ability  to  control  virtually  unlimited  information.  When  a  sin- 
gle compact  disk  was  plugged  into  CDTV,  a  television  became  a 
library,  one  that  included  more  than  books — also  pictures,  even 
moving  pictures,  and  sounds.  In  a  CDTV  encyclopedia  entry  on 
Dr.  Martin  Luther  King,  Jr.,  the  civil-rights  leader's  biography 
came  to  life  in  high-resolution  graphics  and  full-blown  stereo 
sound.  Bushnell  asked,  "What  is  the  biography  of  Martin  Luther 
King  without  his  oratory?"  King's  "I  Have  a  Dream"  speech  was 
available  at  the  click  of  the  remote  control. 

"It's  the  combination  of  the  audio  record,  video  records,  text, 
and  the  interactivity  that  control  these  items  that  make  it  happen," 
Bushnell  explained.  With  a  CDTV  children's  book,  kids  no  longer 
would  be  passively  fed  television.  They  would  influence  the  stories 
they  were  being  told,  choosing  whether  the  hero  would  be  a  prince 
or  a  princess,  or  whether  he  or  she  would  kill  the  dragon  or  be- 
friend it.  All  forms  of  media — movies,  books,  music — were  becom- 
ing more  like  video  games,  which  is  why  Bushnell  was  convinced 
that  CDTV  would  revolutionize  education.  "A  video  game  can 
teach  geography  and  history  as  a  player  moves  through  the 


REVERSAL   OF    FORTUNE  133 

course,"  he  said.  "A  game  can  teach  complex  decision  making  and 
critical  thinking." 

Education,  Bushnell  said,  was  why  he  was  so  committed  to 
CDTV.  (It  was  silently  understood  that  the  other  reason  for  his 
commitment  was  the  high  salary  he  was  getting  from  Commo- 
dore.) The  system  could  teach  kids  at  their  own  pace  and  at  a 
fraction  of  the  cost  of  a  computer  with  similar  capabilities.  Posters 
on  the  walls  explained  the  vision  of  CDTV's  promoters,  darling, 

WOULD  YOU  ASK  THE  KIDS  TO  LOWER  THE  VOLUME  ON  THE  ENCYCLOPEDIA? 

Another:  now,  turn  on  the  tv  and  do  your  homework. 

Still,  the  future  of  CDTV  was  anything  but  guaranteed.  Its  re- 
trieval system  was  pretty  sluggish,  and  the  software  available  for  it 
was  limited,  but  there  was,  nonetheless,  an  audible  buzz  in  the 
room  when  it  was  shown  off.  "This  is  multimedia  at  its  best," 
Bushnell  said.  "It  will  revolutionize  our  lives." 

After  applause,  Bushnell  stepped  away  from  the  microphone 
and  headed  to  his  seat  next  to  Irving  Gould.  A  reporter  for  a 
consumer-electronics  trade  journal  in  the  audience  whispered 
loudly,  "Wasn't  he  the  cat  who  was  here  a  few  years  ago  with 
something  else  he  thought  was  going  to  revolutionize  our  lives?" 

Nolan  Bushnell  had  been  trying  to  revolutionize  our  lives  so 
often  that  it  was  difficult  to  take  him  completely  seriously.  His  life 
had  been  a  roller  coaster  of  revolutionary  visions  and  promises — 
and  the  millions  of  dollars  that  come  with  them — but  also  the 
disappointments. 

In  the  early  1980s,  he  had  had  two  fully  decked-out  Learjets  to 
shuttle  him  between  his  Woodside,  California,  estate  and  his 
homes  in  Aspen,  Georgetown,  and  Paris  (where  his  palace's  back- 
yard opened  onto  a  view  of  the  Eiffel  Tower).  When  he  wasn't 
sipping  Dom  Perignon  above  the  clouds,  he  was  often  racing  his 
sailboat,  in  training  for  the  Transpac,  one  of  the  oldest  yacht  races 
in  the  world,  which  he  won  in  1983.  When  he  took  to  the  roads,  he 
chose  from  among  a  Rolls,  two  Mercedeses,  and  a  Porsche. 

At  the  time,  there  were  few  models  for  the  kind  of  wealth  and 
notoriety  Bushnell  had  acquired  so  quickly  and  so  young;  he  was 
the  first  of  that  generation  of  much-hyped  super-successful  high- 


GAME    OVER 


tech  entrepreneurs,  the  founder  of  one  of  the  fastest-growing  com- 
panies in  history. 

Bushnell,  the  son  of  a  cement  contractor,  grew  up  in  a  bleak 
outpost  near  the  Great  Salt  Lake.  When  he  was  a  child,  he  was 
already  obsessed  with  innovation.  "I  read  science  fiction,"  he  says, 
"and  I  really  wanted  to  live  there,  without  all  the  limitations  we 
have  in  our  world."  He  spent  much  of  his  youth  in  the  family's 
garage,  trying  to  create  the  things  he  read  about.  He  was  only  six 
years  old  when  he  built  a  control  panel  for  a  spaceship  out  of  an 
orange  crate.  He  was  the  youngest  ham  radio  operator  in  Utah — 
but  not  the  shortest;  he  was  six-foot-four  by  the  time  he  was  in 
seventh  grade.  When  he  launched  a  "UFO"  he  had  made — a  hun- 
dred-watt light  attached  to  an  enormous  kite — he  convinced  a  fair 
percentage  of  the  local  population  that  the  planet  was  under  at- 
tack. 

Another  time  he  took  a  few  shotgun  shells,  removed  the  shot, 
and,  wearing  a  ski  mask,  drove  a  borrowed  car  up  to  a  buddy  of  his, 
who  was  standing  in  the  schoolyard  among  a  group  of  their  friends. 
Bushnell  aimed  and  fired  both  barrels  into  his  friend's  chest.  The 
boy  smacked  two  handfuls  of  catsup  against  his  shirt  and  fell  to  the 
ground. 

In  college,  at  Utah  State  and  later  the  University  of  Utah,  Bush- 
nell studied  engineering,  economics,  business,  and  philosophy. 
Once,  when  he  had  lost  his  tuition  money  in  a  poker  game,  he  had 
to  take  work  guessing  people's  weights  and  ages  at  an  amusement 
park.  Eventually  he  ran  the  arcade  there.  At  college  he  often  hung 
out  in  the  school's  computer  lab  playing  a  game  called  "Space- 
war,"  one  of  the  first  computer  games  ever  made. 

Bushnell  graduated  with  an  engineering  degree  in  1968  and 
moved  to  California,  where  he  worked  briefly  as  an  engineer  in  the 
computer-graphics  division  at  Ampex.  At  home,  meanwhile,  in  a 
laboratory  he  made  in  his  daughter's  bedroom  (the  little  girl  was 
exiled  to  the  living-room  couch),  he  created  a  simpler  version  of 
"Spacewar,"  which  by  then  could  be  found  on  computers  at  most 
universities  around  the  country. 

The  game  had  been  invented  in  1962  by  an  MIT  graduate  stu- 
dent named  Steve  Russell  (who  based  it  on  a  series  of  science 
fiction  space  operas  called  Lensman,  written  by  "Doc"  Smith). 


REVERSAL   OF    FORTUNE 


Bushnell's  version,  "Computer  Space,"  was  made  of  integrated 
circuits  connected  to  a  nineteen-inch  black-and-white  television. 
Unlike  a  computer,  it  could  do  nothing  but  play  the  game,  a  primi- 
tive simulation  of  air  combat  between  a  spaceship  and  flying  sau- 
cers. The  key  to  Bushnell's  invention  was  that  since  it  didn't 
require  a  full-fledged  computer,  it  could  be  produced  relatively 
cheaply.  He  envisioned  video  games  like  his  standing  alongside 
pinball  machines  in  arcades,  pool  halls,  and  bowling  alleys. 

With  hopes  of  having  his  machine  put  into  production,  Bushnell 
left  Ampex  for  a  small  pinball-machine  company,  which  manufac- 
tured 1,500  of  them.  They  never  sold,  and  Bushnell,  then  twenty- 
seven,  left  the  company.  He  had  determined  that  "Computer 
Space,"  which  required  players  to  read  a  full  page  of  directions 
before  they  could  play,  was  too  complex. 

He  set  out  to  make  a  simpler  game,  and  this  time  he  would  sell  it 
himself.  Kicking  in  $250  each,  he  and  a  friend  formed  a  company 
they  called  Syzygy  (from  a  word  meaning  the  nearly  straight-line 
configuration  of  three  celestial  bodies  in  a  gravitational  system — 
for  example,  the  sun,  the  moon,  and  the  earth).  The  name  was 
already  taken  by  another  company,  so  Bushnell  chose  the  Japanese 
word  that  was  the  equivalent  of  check  in  the  game  go:  atari. 

In  his  home  laboratory,  Bushnell  built  a  new  game,  "the  easiest 
one  I  could  think  of.  People  knew  the  rules  immediately,  and  it 
could  be  played  with  one  hand,  so  people  could  hold  a  beer  in  the 
other."  A  "ball"— really  a  squarish  dot  of  light— was  batted  back 
and  forth  by  two  inch-long  paddles  that  were  projected  on  a 
screen.  The  paddles,  on  the  far  sides  of  the  "court,"  could  be 
moved  up  and  down  when  players  twisted  knobs  on  the  front  of  a 
crudely  built  cabinet.  "I  made  it  with  my  own  two  hands  and  a 
soldering  iron,"  Bushnell  says.  He  named  it  "Pong,"  after  the  so- 
nar-like "pongs"  that  sounded  each  time  the  ball  made  contact 
with  the  paddle. 

In  the  fall  of  1972,  Bushnell  placed  "Pong,"  the  first  commercial 
video-arcade  game,  with  a  coin  box  bolted  to  the  outside,  in  Andy 
Capp's  tavern,  a  popular  Sunnyvale  pool  bar  that  holds  a  place  in 
Silicon  Valley  lore  rivaled  only  by  the  garage  in  which  Steve  Jobs 
and  Steve  Wozniak  invented  the  Apple  computer. 

Set  beside  a  pinball  machine,  "Pong"  was  an  oddity,  a  dark  wood 


1  36  GAME    OVER 

cabinet  that  held  a  black-and-white  TV  screen  on  which  cavorted  a 
white  blip  like  a  shooting  star  in  a  black  sky.  One  of  the  bar's 
patrons  stood  over  the  machine,  examining  it.  "Avoid  missing  ball 
for  high  score,"  read  the  only  line  of  instructions. 

The  young  man  reached  into  his  pocket,  extracted  a  quarter,  and 
slipped  it  into  a  slot  on  the  console  as  he  called  a  friend  over.  The 
machine,  announcing  its  name  with  its  trademark  bleat,  "served"  a 
ball  automatically  from  one  side  of  the  screen.  The  players  missed 
the  first  few  serves  until  they  got  the  hang  of  the  controls,  but  two 
bucks'  worth  of  quarters  later,  they  were  having  lengthy  volleys.  A 
crowd  had  gathered  around  to  watch.  There  was  a  long  line  in 
front  of  the  machine  for  the  entire  day,  and  the  next  day  too. 

The  "Pong"  machine  stopped  working  toward  the  end  of  the 
second  day;  the  coin  box  was  stuffed  with  so  many  quarters  that  the 
game  had  short-circuited.  A  new  coin  box  (actually  a  casserole 
dish)  was  installed  inside  the  machine.  It  took  about  a  week  to  be 
filled  to  its  capacity  of  about  1,200  quarters.  Bushnell  was  ecstatic. 
His  simple,  monotonous  game  was  bringing  in  $300  a  week.  The 
pinball  machine  that  stood  next  to  it  was  earning  only  about  $30  or 
$40. 

Lacking  the  money  to  do  a  major  "Pong"  production  run  him- 
self, Bushnell  approached  the  established  amusement-game  mak- 
ers, companies  like  Bally's  Midway.  The  pinball  companies 
unceremoniously  showed  Bushnell  the  door.  He  was  left  with  two 
alternatives:  he  could  either  finance  the  venture  himself  or  for- 
get it. 

To  get  some  quick  cash,  Bushnell  accepted  jobs  consulting  for 
electronics  companies,  and  he  talked  his  way  into  a  $50,000  line  of 
credit  with  a  local  bank.  Employing  a  band  of  long-haired  techies 
whom  he  paid  next  to  nothing,  he  started  an  assembly  line  in  an 
abandoned  roller-skating  rink.  The  rowdy  gang  assembled  ma- 
chines for  twelve  to  sixteen  hours  a  day  as  the  Rolling  Stones  and 
Led  Zeppelin  blared  from  a  staticky  stereo  system.  Dan  Van 
Elderen,  a  young  engineering  graduate  who  came  on  to  assemble 
games,  recalls  that  "there  wasn't  even  a  monitor  business  in  those 
days.  All  the  original  'Pong'  games  were  built  with  Motorola  TVs. 
We  threw  away  the  plastic  case  and  the  tuner  and  RF  circuitry  and 
used  the  raw  tube  and  video  drivers." 


REVERSAL    OF    FORTUNE  13  7 


Bushnell  met  potential  customers,  mostly  distributors  who  han- 
dled pinball  machines  and  jukeboxes,  and  was  able  to  sell  all  the 
machines  his  small  staff  could  make,  about  ten  a  day.  If  he  was 
going  to  make  any  real  money,  however,  he  had  to  expand;  he 
needed  more  cash.  Banks  and  investment  bankers  declined  to  put 
up  money  because  of  rumors  that  Atari  was  connected  to  the  Ma- 
fia. Also,  they  were  worried  about  an  inherent  flaw  in  the  whole 
idea  of  video  games:  people  would  steal  the  TVs  from  the  con- 
soles. 

Investors  whom  Bushnell  fast-talked  past  these  concerns  were 
turned  off  when  they  visited  the  company's  site.  Employees  in 
ripped  jeans  and  worn  sneakers  (if  they  wore  shoes  at  all)  worked 
whenever  they  wanted  to.  Staff  meetings  were  a  rarity.  The 
founder  wore  T-shirts  or  flower-print  shirts  with  polka-dot  ties.  As 
Steve  Jobs,  one  of  Atari's  early  employees,  remembers,  "The  smell 
of  marijuana  ran  freely  through  the  air-conditioning  system.  A  few 
of  the  people  there  had  beards  so  large  that  I  never  once  saw  their 
faces." 

Bushnell  was  a  consummate  salesman,  obnoxiously  persistent. 
This  and  his  immodest,  even  grandiose,  vision— he  projected  sales 
of  hundreds  of  millions  of  dollars — finally  convinced  one  of  the 
Valley's  most  astute  and  credible  venture  capitalists,  Don  Valen- 
tine, to  back  the  company.  The  cash  infusion  allowed  Atari  to 
grow.  Bushnell  hired  more  staff  and  rallied  his  team  with  cheer- 
leading,  charm,  and  anything  else  that  worked— including  lying;  he 
persuaded  one  employee  to  work  double-time  on  some  revised 
circuitry  for  "Pong"  by  telling  him  that  General  Electric  was  wait- 
ing anxiously  for  units,  even  though  GE  had  refused  to  return  his 
calls. 

"We  were  all  so  young,"  he  says.  "I  was  in  my  twenties.  My  vice- 
presidents  were  in  their  twenties.  Many  of  the  people  were  teen- 
agers." Atari  had  a  fund  for  "unwanted  pregnancies"  and  another 
to  bail  staffers  out  of  jail.  The  average  age  of  the  staff  was  so  low 
that  when  Bushnell  decided  to  get  group  health  insurance,  the 
rates  for  extraordinary  benefits  were  dirt-cheap — "until  everyone 
started  getting  braces,"  he  remembers.  "Not  for  their  kids,  for 
themselves]" 

A  typical  early  staffer  was  Steve  Jobs,  who  came  on  board  when 


138  GAME    OVER 


he  was  only  seventeen.  At  the  beginning  of  1974,  he  had  dropped 
out  of  Reed  College  and  returned  to  his  parents'  Los  Altos  home. 
When  he  began  looking  for  work,  in  a  local  newspaper  he  saw  a 
help-wanted  ad  that  read  "Have  Fun  and  Make  Money."  He  vis- 
ited Atari.  "We've  got  this  kid  in  the  lobby,"  Bushnell's  partners' 
secretary  announced  one  day.  "He's  either  a  crackpot  or  he's  got 
something." 

Jobs,  skinny,  long-haired,  with  a  Ho  Chi  Minh  beard,  filled  out 
an  application  and  listed  all  the  things  he  had  done — nothing  rele- 
vant, as  it  turned  out,  except  for  some  courses  in  engineering  at 
Reed.  "Don't  call  us,  we'll  call  you,"  he  was  told. 

The  phone  rang  the  next  day.  Jobs  became  Atari's  fortieth  em- 
ployee. He  was  hired  as  a  technician,  earning  $5  an  hour.  His  first 
assignment  was  to  help  an  engineer  on  a  new  game,  "Video  Bas- 
ketball." Atari  was  trying  to  model  its  games  after  field  sports,  for 
"Pong"  circuitry  was  easily  adapted  to  such  simulations. 

Although  Atari  games  were  selling,  Bushnell  was  in  over  his 
head  and  Atari's  survival  was  continually  precarious.  "A  lot  of 
people  don't  understand  that  you  can  be  successful  and  profitable 
and  still  not  have  enough  cash;  a  growing  company  consumes  tre- 
mendous amounts  of  cash,"  he  says. 

The  company  literally  couldn't  afford  the  payroll  twice  one 
month.  Don  Valentine's  money  had  helped  build  up  production, 
but  the  returns  lagged.  A  big  success  that  followed  "Pong"  bailed 
them  out.  It  was  the  first  video  car-racing  game  that  was  controlled 
by  a  steering  wheel  attached  to  the  cabinet.  The  game,  "Gran 
Trak,"  gobbled  up  quarters  even  faster  than  "Pong." 

A  friend  of  Steve  Jobs,  Steve  Wozniak,  an  engineer  at  Hewlett 
Packard,  was  a  "Gran  Trak"  addict.  Most  evenings  after  work  he 
headed  to  a  pub,  where  he  put  great  quantities  of  quarters,  money 
he  could  not  afford,  into  "Gran  Trak."  Jobs  began  to  sneak  him 
into  Atari's  production  facility  at  night,  where  he  could  play  the 
game  for  free.  In  exchange  for  the  free-game  time,  Woz,  a  whiz 
with  computers,  helped  out  whenever  Jobs  hit  a  stumbling  block 
with  some  particularly  tricky  circuitry. 

Bushnell  found  Jobs  tactless  on  occasion,  but  he  liked  the  head- 
strong young  man  and  took  him  under  his  wing.  Jobs  was  working 
in  order  to  earn  enough  money  to  travel  to  India.  Bushnell  helped 


REVERSAL   OF    FORTUNE 


him  by  paying  Jobs's  expenses  to  Europe  in  exchange  for  a  service 
call  in  West  Germany.  Some  games  Atari  had  shipped  there  were 
causing  local  TV  interference. 

Jobs  flew  to  Europe,  adjusted  the  "Pong"  games,  and  continued 
on  to  New  Delhi,  where  he  met  a  guru  who  shaved  his  head.  He 
stayed  in  India  for  six  months  before  returning  to  Palo  Alto  and  his 
old  job,  and  then  was  assigned  to  work  on  one  of  Atari's  oddest 
games.  "Gotcha"  had  been  dreamed  up  in  a  brainstorming  session 
during  which  a  young  technician  joked  that  the  joystick  used  to 
control  most  arcade  games  was  a  phallic  symbol.  The  boy  sug- 
gested that  Atari  try  out  a  "female"  game;  "Gotcha"  was  the  re- 
sult. On  the  game's  console  were  two  rounded  mounds  made  of 
rubber  that  were  squeezed  to  control  game  play.  Insiders  called  it 
"the  boob  game." 

Dan  Van  Elderen  soon  moved  from  assembling  games  to  design- 
ing them.  He  worked  on  a  game  called  "Tank,"  in  which  two 
players  blasted  each  other's  tanks  as  they  sped  through  an  obsta- 
cle-filled maze.  It  was  the  first  game  that  used  ROM  chips  to  store 
graphics  data  (there  was  still  no  microprocessor  in  video  games). 

Other  engineers  refined  a  version  of  "Tank"  that  was  a  favorite 
of  Bushnell's.  As  in  the  original  game,  each  player  controlled  a 
tank  that  tried  to  seek  out  and  destroy  the  other.  When  a  success- 
ful hit  was  made,  the  on-screen  tank  exploded  and  the  player  con- 
trolling the  disabled  vehicle  got  an  electric  shock.  "We  did  it  so  it 
wasn't  lethal  or  anything,"  Bushnell  notes.  "But  all  of  a  sudden  it 
was  real  Certain  people  really  liked  it."  The  company's  legal  de- 
partment, however,  was  not  among  them,  and  the  game  never 
made  it  out  the  door. 

Steve  Wozniak  came  over  to  Atari  to  help  Jobs  build  another 
"Pong"-based  game  for  Bushnell  called  "Breakout."  A  paddle  hit  a 
ball  against  a  wall  of  bricks  that  disappeared,  one  by  one,  when  hit, 
until  there  were  none  left.  Bushnell  liked  the  game,  but  the  cir- 
cuitry required  too  many  expensive  computer  chips.  He  offered 
Jobs  a  bonus  of  $100  for  every  chip  he  was  able  to  eliminate.  Jobs 
made  himself  $5,000. 

When  they  weren't  working  their  day  jobs,  Jobs  and  Wozniak 
were  busy  on  their  own,  in  the  Jobs  family  garage.  They  built  a 
makeshift  computer — a  circuit  board,  really — which  they  called 


GAME    OVER 


the  Apple  I.  Some  of  the  parts  had  been  lifted  from  Atari.  The 
Apple  I  didn't  do  much,  but  when  Wozniak  showed  it  off  at  a 
computer  club  meeting  and  the  result  was  orders  for  fifty  of  the 
contraptions,  it  dawned  on  Jobs  that  there  might  actually  be  a 
market  for  personal  computers,  and  he  left  Atari  to  found  Apple. 

Wozniak's  interest  was  primarily  technical;  Jobs  set  about  mak- 
ing the  computer  accessible  to  people.  Together  they  added  a  key- 
board and  memory,  and  Wozniak  developed  the  disk  drive  and 
added  a  video  terminal.  Jobs  hired  experts  to  design  an  efficient 
power  supply  and  a  fancy  casing,  and  thus  was  born  the  Apple  II — 
and  with  it  an  entire  industry.  Needing  investors,  Jobs  went  to 
Nolan  Bushnell  and  asked  him  to  become  a  partner  in  Apple  Com- 
puter. Bushnell  unwisely  declined. 

Jobs  and  Wozniak  were  only  two  of  the  computer  and  video- 
game industry  executives  who  cut  their  teeth  at  Atari.  A  decade 
after  Bushnell  founded  the  company,  there  were  Atari  alums  in 
high-level  spots  at  Electronic  Arts,  Lucasfilm  and  LucasArts,  Ap- 
ple, Microsoft,  and  a  number  of  other  companies.  "It's  because  we 
provided  a  place  for  creative  people  to  be  part  of  something  com- 
pletely new,"  Bushnell  says.  "These  were  people  who  wanted  to 
create  something  intellectually  stimulating  and  fun.  They  wanted 
to  put  their  talent  into  making  games,  not  bombs." 

Atari,  meanwhile,  continued  to  grow.  In  1973,  after  six  thousand 
"Pong"  games  were  sold  for  more  than  $1,000  each,  Bally 's  Mid- 
way approached  Bushnell  with  a  huge  offer  to  buy  the  rights  to  the 
game.  Bushnell  agreed,  and  Bally's  sold  about  nine  thousand  more 
"Pongs."  Atari  now  had  eighty  employees,  "long-haired  freaks, 
bikers  and  dropouts,  hired  not  for  their  skills  but  on  the  basis  of 
their  good  vibes,"  according  to  Scott  Cohen  in  his  book  Zap!  The 
Rise  and  Fall  of  Atari.  Fortune  reported  that  100,000  "Pong"-type 
games  were  produced  in  1974  alone.  Although  only  a  tenth  of 
those  were  made  by  Atari  ("Pong"  was  copied  with  abandon),  the 
company  earned  $3.2  million  that  fiscal  year.  In  the  three  years 
that  followed,  Atari  sold  $13  million  worth  of  video  games,  includ- 
ing "Quadrapong,"  for  four  players,  and  "Puppy  Pong,"  in  a 
Formica  doghouse. 

In  1974,  after  Atari's  success  with  "Gran  Trak,"  Bushnell  de- 


REVERSAL   OF    FORTUNE  141 


cided  to  make  a  "Pong"  system  for  the  home.  The  trick  would  be 
to  compress  a  coin-operated  game  down  to  a  few  inexpensive  com- 
ponents. Magnavox  had  been  selling  a  home  video-game  system 
for  the  past  two  years  that  had  been  created  back  in  1966  by  Ralph 
Baer,  a  supervising  engineer  at  a  company  called  Sanders  Associ- 
ates. Baer  had  come  up  with  a  game  almost  identical  to  "Pong" 
that  played  on  a  seventeen-inch  RCA  color  set,  but  Sanders  did 
nothing  with  the  technology  until  Magnavox  licensed  it. 
Magnavox's  Odyssey  used  Mylar  overlays  taped  to  the  TV  screen 
that  depicted  different  game  boards  or  playing  fields.  One  hundred 
thousand  Odysseys  sold  in  1972,  its  first  year  on  the  market. 

Atari's  home  "Pong"  had  a  sharper  picture  and  more  sensitive 
controllers  than  the  Magnavox  system,  and  it  also  cost  less.  Still, 
when  Bushnell  showed  "Pong"  off  at  toy  shows,  none  of  the  major 
chains  showed  interest.  Dejected,  he  returned  to  Atari  with  no  idea 
where  to  turn  next.  Then  the  buyer  for  the  sporting  goods  depart- 
ment of  Sears  Roebuck  came  to  see  him,  and  before  he  left,  he  had 
offered  to  buy  every  home  "Pong"  game  Atari  could  make. 

With  the  backing  of  Sears,  Bushnell  had  the  ability  to  boost 
Atari's  production  capacity.  The  retailer  mounted  a  major  televi- 
sion ad  campaign,  and  Atari's  1975  sales  shot  up  to  almost  $40  mil- 
lion. Bushnell  spent  as  much  of  it  as  he  could — on  parties, 
expensive  suits,  and  sports  cars.  "We  were  absolutely  no  more  or 
less  irresponsible  or  crazy  than  Ross  Johnson  and  those  guys  at 
RJR  Nabisco,"  Bushnell  says.  "The  only  difference  is  they  were 
running  corporate  America." 

Arcade  games  became  more  sophisticated  when  microproces- 
sors dropped  in  price  by  the  mid-1970s.  Dan  Van  Elderen  was  part 
of  the  team  that  built  Atari's  first  microprocessor-based  game, 
"Sprint,"  a  driving  game  with  oncoming  traffic  that  required  realis- 
tic, quick  reactions.  Up  until  this  point,  Atari  had  basically  been  a 
hardware  business.  With  microprocessors — which  used  stored  in- 
formation from  programs  as  needed — software  became  integral  to 
video  games,  and  rooms  full  of  programmers  were  hired. 

With  income  from  the  arcade  games,  the  deal  with  Sears,  and 
more  venture-capital  money,  Atari  was  poised  to  expand  and  take 
on  the  competition.  By  the  end  of  1976,  twenty  different  compa- 
nies, from  RCA  and  National  Semiconductor  to  Coleco,  were 


GAME    OVER 


making  home  video-game  systems,  each  trying  to  outdo  the  next 
with  marketing  dollars  and  technology.  When  Fairchild  Camera 
introduced  the  first  full-color  system  with  changeable  cartridges 
(created  by  Alpex),  Atari's  entry  had  to  be  that  much  better.  It  was. 
Atari's  engineers  assigned  their  new  products  code  names.  Their 
programmable  video-game  system  was  Stella,  named  after  a 
woman  in  the  personnel  department.  Officially  named  the  Atari 
2600,  it  was  a  powerful  and  inexpensive  machine,  but  the  outlay 
required  to  manufacture  and  market  it  on  a  big-league  scale  was 
beyond  Bushnell.  He  considered  going  public  but  decided  to  try  to 
find  a  corporate  investor  first. 

MCA  and  Disney  declined.  It  would  be  a  year  or  two  before  the 
likes  of  Sid  Sheinberg  fathomed  the  significance  of  the  new  video- 
game industry.  Warner  Communications,  on  the  other  hand,  ap- 
proached Bushnell. 

Steve  Ross,  the  company's  silver-haired  chairman,  who  later 
drove  the  Time  Inc.-Warner  Communications  merger,  heard  from 
one  of  his  executives  that  Atari  was  looking  for  investors.  Ross 
knew  about  Atari.  Once,  at  Disneyland,  he  had  briefly  lost  track  of 
his  kids.  When  he  found  them  they  were  gathered  around  an  Atari 
video  game  called  "Indy  8,"  an  eight-player  road-race  game.  "His 
family  was  hypnotized  and  he  sat  there  and  watched  the  machine 
suck  up  quarters,"  according  to  Manny  Gerard,  the  executive  who 
told  Ross  that  Atari  was  looking  for  an  investor  in  1976. 

Gerard  saw  the  video-game  business  for  what  it  was:  the  com- 
puter, entertainment,  and  consumer-electronics  businesses  rolled 
into  one.  "I  saw  the  2600  in  an  Atari  lab  and  said,  'Holy  shit!  This 
is  going  to  take  over  the  world.'  "  He  convinced  Ross  that  Warner 
should  not  make  an  offer  to  invest  in  Atari  but  rather  buy  it  out- 
right. When  Ross  gave  him  the  okay,  Gerard  negotiated  with  Bush- 
nell and  his  highest-ranking  cohorts. 

At  first,  the  Atari  team  said  they  weren't  interested  in  an  acquisi- 
tion, but  it  was  more  a  pose  than  anything.  "We  were  exhausted," 
Bushnell  says.  "The  offer  from  Warner  was  a  relief."  The  size  of 
the  offer  encouraged  them  too,  and  a  deal  was  struck.  Warner  paid 
$28  million,  a  pretty  good  return  on  Bushnell's  $250  investment. 
Bushnell  and  his  friends  made  a  fortune,  and  anyway,  the  deal  had 


REVERSAL    DF    FORTUNE 


him  stay  on  as  chairman.  Bushnell  reportedly  said,  "I've  always 
been  telling  people  I  was  a  millionaire.  Now  I  am." 

The  relationship,  however,  was  ill-fated.  "I  should  have  known  it 
wouldn't  last,"  Bushnell  says.  "It  just  wasn't  fun  anymore  when  it 
wasn't  mine."  He  worked  under  Gerard  for  two  years,  but  he  had 
lost  his  focus.  Gerard  claims  that  Bushnell  spent  more  time  man- 
aging his  personal  investments  than  running  Atari.  "He  wanted  the 
business,  wanted  to  run  it,  but  didn't  want  to  come  to  work," 
Gerard  says. 

When  Bushnell  did,  he  clashed  with  the  Warner  management  on 
most  issues.  He  says  he  wanted  Atari's  new  computer,  the  800,  to 
blow  the  inferior  Apple  II  out  of  the  water  (partly  as  revenge,  after 
he  passed  up  on  the  opportunity  to  be  a  founding  partner  in  Ap- 
ple). However,  while  Steve  Jobs  was  encouraging  developers  to 
write  programs  for  the  Apple  II,  Atari  threatened  to  sue  anyone 
who  tried  to  make  software  for  the  800.  If  customers  wanted  a 
spreadsheet  or  word  processor  for  the  800,  they  had  to  buy  Atari's. 
Meanwhile,  outside  developers  came  out  with  software  for  the 
Apple  II— VisiCalc  spreadsheet,  for  one— that  sold  millions  of  the 
machines. 

Bushnell  also  disagreed  with  Warner's  handling  of  the  video- 
game business.  He  felt  their  huge  stock  of  2600s  should  be  dumped 
for  cost  because  Atari  would  make  its  profits  on  software,  but 
Warner  management  vetoed  the  idea. 

Atari  was  poised  for  a  big  year  in  1978,  but  so  were  National 
Semiconductor,  Fairchild,  General  Instrument,  Coleco,  Magnavox 
(which  had  released  Odyssey  2),  and  a  dozen  other  companies. 
The  Christmas  season  came  and  went,  and  few  consumers,  perhaps 
because  they  were  confused  by  all  the  choices,  brought  video 
games  home  that  year.  Of  all  the  entrants,  only  Atari  and  Coleco 
survived,  and  Atari  was  in  shambles. 

Manny  Gerard,  who  had  to  answer  to  Steve  Ross,  put  the  screws 
to  Bushnell,  who  was  never  known  to  respond  well  to  anyone  else's 
ideas,  never  mind  anyone  else's  ideas  about  his  company.  "You 
can't  rule  by  the  divine  right  of  kings,"  Gerard  told  him,  where- 
upon Bushnell  stopped  returning  Gerard's  calls. 

Gerard  decided  to  bring  in  someone  new  to  run  Atari.  He  chose 


GAME    OVER 


Ray  Kassar,  a  former  marketing  vice-president  from  Burlington 
Industries.  Kassar  was  as  buttoned-down  as  Bushnell  was  north- 
ern-California-casual, and  a  clash  was  inevitable. 

Bushnell,  his  necktie  flying  over  his  shoulder,  arrived  late  to  the 
November  1978  annual  budget  meeting  at  Warner's  headquarters 
at  75  Rockefeller  Center  in  New  York.  Winded  and  pink-cheeked, 
he  threw  his  jacket  onto  a  coffee  table  and  plopped  into  the  only 
empty  chair,  at  the  far  end  of  the  marble  conference  table.  He 
looked  carefully  around  the  table  at  the  Warner  brass,  who  began 
"the  inquisition,"  as  he  remembers  it.  They  wanted  to  know  what 
Bushnell  planned  to  do  in  the  coming  year  with  their  subsidiary 
(which  was  generating  $250  million  in  sales  but  no  profits). 

Bushnell  let  loose,  attacking  virtually  everything  Manny  Gerard 
and  Ray  Kassar  wanted  to  do.  First,  Atari  should  fold  its  sinking 
pinball-machine  business.  Second,  Atari  shouldn't  even  think 
about  launching  the  800  computer  unless  it  changed  its  policy  and 
encouraged  software  companies  to  create  programs  for  the  plat- 
form. Third,  the  2600's  price  should  be  slashed.  Warner,  he  said, 
should  invest  whatever  it  took  in  during  the  short  term  for  the 
profitable  long-term  business.  Greed  would  destroy  the  company. 

Manny  Gerard  was  outraged  that  Bushnell  had  aired  his  dissatis- 
faction in  front  of  the  Warner  bosses.  "Man,  was  he  pissed  off," 
Bushnell  says.  Gerard  says  he  was  countering  Bushnell's  "bullshit 
and  lies."  Gerard  contradicted  everything  Bushnell  said.  He  said 
that  Bushnell  was  the  one  who  was  going  to  sink  Atari.  The  two 
shouted  each  other  down.  In  the  end,  as  Scott  Cohen  writes,  "Ge- 
rard yelled  louder." 

After  the  meeting,  the  two  men  met.  Gerard  said,  "You  don't 
believe  in  the  program.  Maybe  you  should  leave." 

Bushnell  did:  with  $1  million  cash,  about  $12  million  in  deben- 
tures (which  Warner  eventually  bought  back),  a  $100,000-a-year 
salary,  and  bonuses  and  options.  The  only  condition  was  that  he 
couldn't  compete  with  Atari  for  the  next  seven  years.  "They  saw 
me  as  an  extremely  creative  gamer  as  well  as  a  strategist,"  Bushnell 
says.  "They  knew  that  I  at  least  might  be  right,  and  they  didn't  want 
me  to  be  able  to  shove  it  in  their  faces.  They  were  also  afraid 
because  I  had  tremendous  relationships  with  all  the  engineers. 


REVERSAL    OF    FORTUNE  1  A  5 


They  thought  the  engineers  would  leave  Atari  and  we'd  go  up 
against  them  and  blow  them  away." 

When  he  made  his  original  deal  with  Warner,  Bushnell  retained 
some  technology  that  Warner  didn't  want  to  pursue.  One  example 
was  Chuck  E.  Cheese  Pizza  Time  Theater.  Relieved  to  be  severed 
from  any  obligation  to  Warner,  Bushnell  charged  headlong  into 
building  Chuck  E.  Cheese. 

By  1981  there  were  278  Chuck  E.  Cheeses,  each  bringing  in 
more  than  nine  times  the  profits  of  a  typical  pizza-chain  restaurant 
(Nintendo's  franchise  opened  in  Vancouver  in  1983).  Bushnell  was 
coining  money,  and  his  net  worth  escalated  into  the  $100  million 
range.  He  began  to  collect  jets  and  homes  the  way  other  people 
collect  Depression-era  glass.  His  first  Learjet  cost  him  $4  million. 
He  named  it  Danieli,  after  the  hotel  in  Venice  where  he  and  his 
second  wife  spent  their  honeymoon.  Bushnell  delighted  in  jetting 
around  the  globe,  sometimes  shuttling  such  famous  passengers  as 
George  Bush  and  Francis  Ford  Coppola.  When  he  visited  a  place 
he  liked,  he  bought  a  home  there. 

But  Bushnell  became  bored  with  jet-setting  and  only  one  busi- 
ness in  the  works.  "I  studied  a  lot  of  philosophy  when  I  was  in 
college,"  he  says.  "I  learned  a  Kierkegaardian  dialectic  that  postu- 
lates that  the  prime  mover  in  the  universe  is  boredom:  God  was 
bored,  so  he  created  the  universe,  and  then  man  and  woman. 
Woman  was  bored,  so  she  ate  the  apple  in  the  Garden  of  Eden. 
For  me,  boredom  is  a  prime  mover.  I  go  from  being  bored  to  being 
completely  hassled  and  harried,  because  I  always  bite  off  more 
than  I  can  chew.  And  it  gets  worse  as  I  get  older,  because  now  I 
know  how  to  follow  through  on  ideas.  I'm  in  real  trouble  whenever 
I  get  obsessed  with  two  or  three  new  things." 

This  time  boredom  led  to  the  founding  of  Catalyst  Technologies 
in  Sunnyvale  later  in  1981.  Bushnell  called  it  his  "fifty-thousand- 
square-foot  incubator,"  where  over  a  dozen  independent  compa- 
nies worked  on  projects  he  financed.  The  idea,  he  said,  was  to 
"fund  a  company  with  a  key,  not  a  check"— a  start-up  would  im- 
mediately have  an  office,  receptionists,  copy  machines,  telephones, 
and  everything  else  it  needed.  In  return  for  all  this,  plus  cash  flow, 
Bushnell  owned  a  large  share  of  all  Catalyst  companies. 


GAME    OVER 


Cinemavision  made  a  color  monitor  with  four  times  the  resolu- 
tion of  standard  televisions.  TimberTec  was  a  computer  camp  for 
kids.  ByVideo  was  a  mail-order  computer  network  company 
through  which  one  could,  say,  order  shoes  via  a  video  "catalogue." 

Other  Catalyst  companies  included  ACTV,  an  interactive  cable- 
television  system  in  New  York  City  which  had  a  fancy  remote 
control  that  allowed  you  to  choose  not  only  the  camera  angle  from 
which  you  watched  a  baseball  or  football  game  but  the  fates  of 
characters  in  TV  movies.  Another  company,  Compower,  made 
computer  products.  Bushnell  rescued  a  company  called  Axlon,  and 
with  it  began  manufacturing  the  Playskool  Baby  Monitor,  which 
allowed  parents  to  listen  in  on  their  sleeping  infants.  Axlon  also 
came  out  with  Petsters,  robotic  cats  and  dogs  that  ran  around  the 
house,  and  AG  Bear,  which  echoed  back  spoken  patterns  in  a 
gravelly  grumble.  IRO  did  skin  care  and  color  analysis  electroni- 
cally. Magnum  Microwave  made  components  for  the  government 
(for  the  Tomahawk  missile)  and  other  industrial  customers.  Then 
there  was  Sente,  which  created  video  games  that  incorporated  ho- 
lograms and  video  disks.  Bushnell  planned  to  pit  Sente  against 
Atari  when  the  noncompetition  agreement  expired. 

"I  put  the  first  dollar  in  all  those  companies,"  Bushnell  says.  It 
was  a  way  for  him  not  just  to  have  dozens  of  ideas,  but  to  give  them 
life.  His  choice  of  the  name  Sente  summed  up  part  of  what  drove 
him.  As  Atari  meant  "check"  in  go,  Sente  meant  "checkmate." 

Some  Catalyst  companies  were  particularly  brilliant.  ETAK  cre- 
ated the  technology  for  TravelPilot,  the  first  electronic  car  map  to 
be  sold  commercially.  A  small  TV-like  screen  displayed  maps 
stored  on  CDs.  When  you  typed  in  your  present  location  and  desti- 
nation, street  maps  showing  the  best  routes  appeared.  As  you 
drove,  the  maps  shifted  to  show  the  car's  progress.  It  told  where 
you  were  with  an  electronic  compass,  which  tracked  you,  based  on 
information  from  sensors  on  the  wheels.  Bushnell  said  he  expected 
there  to  be  a  map  system  in  every  car  in  the  country. 

Of  all  the  Catalyst  companies,  Bushnell's  favorite  was  Androbot, 
which  built  "intelligent"  robots  for  domestic  use— robots  that 
could  learn  from  their  experience.  Information  from  nine  or  ten 
infrared  and  sonar  sensors  were  processed  through  the  robot's 
computer  so  that  it  would  seek  out  human  beings,  learn  the  layout 


REVERSAL   OF    FORTUNE  14  7 


of  a  room,  and  perform  an  increasing  number  of  useful  tasks. 
Bushnell  became  obsessed  with  robotics.  Androbot,  he  said,  would 
be  his  "billion-dollar  company  that's  going  to  last  forever."  But 
though  his  vision  of  a  personal  robot  may  someday  come  to  be,  it 
will  happen  without  Bushnell.  After  he  had  spent  $12  million  of  his 
own  money,  Androbot  imploded. 

So  did  other  Catalyst  companies.  He  sold  IRO  for  a  huge  loss. 
"It  turns  out  that  women  don't  want  scientific  rigor  in  their 
beauty,"  Bushnell  says.  He  ended  up  selling  Sente  for  $3.5  million 
to  Bally's  Midway  in  order  to  raise  cash  for  Pizza  Time.  Another 
failure  was  a  liquid-crystal  display  business.  ACTV  was  sold,  al- 
though Bushnell  retained  some  interest.  Axlon,  the  toy  company, 
went  public  the  year  that  seventeen  other  toy  companies  went 
bankrupt— primarily  because  kids  quit  buying  toys  and  started  buy- 
ing video-game  systems  made  by  a  newcomer  in  the  U.S.  market, 
Nintendo. 

Bushnell  kept  Axlon  out  of  Chapter  11  but  downsized  it  and 
made  it  into  a  licensing  company.  Eventually,  an  ETAK-like  sys- 
tem will  be  in  every  car  as  standard  equipment,  or  at  least  as  an 
option,  but  Bushnell  will  not  be  the  one  to  get  rich  from  it.  Rupert 
Murdoch  bought  ETAK  (for  $35  million)  in  1985  and  licensed  the 
technology  to  Blaupunkt. 

In  the  early  eighties,  at  the  height  of  Chuck  E.  Cheese's  success, 
Bushnell,  still  fighting  boredom,  was  spending  less  and  less  time  at 
the  helm  of  his  company  and  more  and  more  time  at  the  helm  of 
his  yacht.  "I  was  living  rich,"  he  admits.  "A  certain  amount  of 
hubris  developed.  All  of  a  sudden  you  start  thinking  you  can  do  no 
wrong.  You've  created  one  mega-enterprise.  The  next  turns  into 
another  mega-enterprise  and  you  have  $200  million.  Hell,  no 
sweat.  Why  can't  I  buy  whatever  I  want?  You  get  sloppy.  I  took  my 
eye  off  the  ball." 

That  is,  he  went  sailing.  In  1983,  he  was  racing  in  the  Transpac 
and  was  out  of  touch  with  the  staff  that  was  running  Chuck  E. 
Cheese.  When  his  boat  sailed  into  Waikiki,  taking  first  place,  there 
was  much  fanfare,  champagne,  and  cheering.  Eventually  Bushnell 
made  it  to  a  pay  phone,  but  he  was  unprepared  for  what  he  heard. 
Chuck  E.  Cheese  was  going  down  the  tubes— the  company  had  to 
write  off  a  $10  million  quarterly  loss.  Bushnell  didn't  wait  around 


14B  GAME    OVER 


to  pick  up  his  Transpac  trophy  and  flew  home,  but  it  was  too  late. 
The  company's  board  wanted  to  bring  in  a  corporate  doctor,  and 
Bushnell  resigned.  Now  he  says  it  was  the  worst  business  decision 
he  ever  made.  'Tm  very  tenacious,"  he  says.  "I  believe  I  could 
have  saved  Chuck  E.  Cheese  without  going  bankrupt."  Six  months 
after  he  left,  Pizza  Time  was  in  Chapter  11  and  his  millions  of 
shares  were  worthless.  "It  was  like  my  luck  was  all  used  up,"  he 
says. 

Chuck  E.  Cheese  was  merged  with  a  hotel  chain  that  eventually 
turned  the  company  around  (although  the  original  Sunnyvale  loca- 
tion became  a  dim  sum  restaurant).  Bushnell,  however,  was  left  to 
face  some  harsh  realities.  He  had  to  sell  his  jets,  his  yacht,  and  all 
but  his  Woodside  and  Aspen  homes.  "I  was  flying  much  too  high  to 
be  brought  down  by  a  small  arrow;  it  took  a  three-stage  rocket, 
because  I  was  in  the  stratosphere,"  he  said.  "I  believed  I  could  do 
no  wrong."  It  was  time  for  some  soul-searching.  He  sat  in  his  office 
in  the  dark,  staring  out  the  window.  His  cash  flow,  as  he  puts  it,  was 
tight.  Chuck  E.  Cheese  and  Androbot  were  gone.  He  contem- 
plated the  future.  "What's  next,  big  boy?"  he  asked  himself. 

An  industry  insider  who  knew  Bushnell  believed  that  he  was 
bitter  about  his  sudden  decline.  "It's  very  sad,"  he  says.  "Steve 
Jobs  worked  for  Nolan.  Nolan  should  be  Jobs,  or  Bill  Gates.  It  eats 
away  at  him."  Still,  Bushnell  was  philosophical.  "I've  had  a  multi- 
plicity of  MBAs  in  the  school  of  hard  and  soft  knocks,"  he  says. 
"I've  had  some  tremendous  lucky  breaks  and  some  unkind  breaks, 
but  it's  never  been  dull." 

As  difficult  as  it  was  to  imagine  for  many  of  those  who  worked 
with  him,  by  1990  the  godfather  of  all  the  Silicon  Valley  boy-won- 
der entrepreneurs  had  to  get  a  job— which  is  where  Commodore 
came  in.  They  wanted  Bushnell  on  board  to  sell  CDTV. 

Meanwhile,  the  industry  Bushnell  had  founded  was  thriving.  By 
1978,  Americans  were  spending  more  than  $200  million  a  year  on 
home  video  games.  By  1981,  the  amount  had  increased  to  $1  bil- 
lion. Mattel  had  entered  the  fray  with  Intellivision.  In  1982,  video- 
game sales  skyrocketed.  Atari  accounted  for  half  of  the  revenue 
for  Warner  Communications  and  more  than  60  percent  of  its  oper- 
ating net. 


REVERSAL   OF    FORTUNE  149 


It  seemed  as  if  Atari  could  do  no  wrong.  The  2600  was  every- 
where; 20  million  units  were  sold,  and  there  were  1,500  games 
available  for  it.  Activision,  Epyx,  and  many  other  independent 
companies  began  making  millions  manufacturing  game  cartridges 
for  the  2600.  Coleco  came  up  with  its  strong  competitor,  ColecoVi- 
sion,  which  promised,  for  the  first  time,  arcade-quality  video  games 
on  a  home  screen.  With  an  expansion  module,  ColecoVision  was 
able  to  play  all  the  Atari  2600  cartridges.  ColecoVision  sold  well, 
partly  because  it  played  a  home  version  of  one  incredibly  popular 
arcade  game  it  licensed  from  Nintendo:  "Donkey  Kong." 

Soon  Mattel  and  Atari  were  making  ColecoVision  games  for 
their  own  systems.  Milton  Bradley  tried  to  keep  pace  with  Voice 
Command  video-game  cartridges  tied  to  the  Texas  Instruments 
99/4A  home  computer,  but  the  attempt  fizzled.  It  was  the  excep- 
tion in  a  rapidly  expanding  market:  the  home  video-game  business 
was  bringing  in  over  $3  billion  a  year. 

Arcades,  meanwhile,  were  bringing  in  even  more:  $5  or  6  billion, 
in  spite  of  a  backlash  against  them.  Communities  as  far  apart  as 
Babylon,  Long  Island,  Oakland,  California,  and  Pembroke  Pines, 
Florida,  passed  ordinances  restricting  play  by  teenagers  of  various 
ages.  The  United  States'  surgeon  general,  C.  Everett  Koop,  issued 
a  statement  indicting  video  games  for  producing  "aberrations  in 
childhood  behavior"  and  causing  users  to  become  addicted  "body 

and  soul." 

But  video  games  were  sweeping  the  world.  "Fascination  with  the 
games,  often  accompanied  by  cosmic  brooding  about  their  pre- 
sumed bad  effect  on  faith,  morals  and  school  attendance,  seems  to 
be  universal,"  wrote  John  Skow  in  Time  in  1982.  The  article  re- 
ported that  games  such  as  "Asteroids,"  "Defender,"  "Missile 
Command,"  "Pac-Man,"  and  "Donkey  Kong"  were  consuming,  in 
addition  to  all  those  quarters,  75,000  man-years  in  the  United 
States  alone. 

Yet  Nolan  Bushnell's  timing  in  leaving  Atari  was  fortuitous.  The 
company  fell  further  and  further  behind  Apple  in  computers,  and 
then  its  bread  and  butter,  the  video-game  business,  crashed. 

Bushnell  winces  when  he  remembers  some  of  the  mistakes  Atari 
made  under  Warner.  "The  number  of  horrendous  management 
decisions  that  went  on  in  that  place  is  amazing,"  Bushnell  says.  "A 


GAME    OVER 


lot  of  people  got  involved  with  the  company  who  really  were  un- 
derqualified,  and  there  was  a  tremendous  revolving  door  of  vice- 
presidents.  The  company  had  been  very  successful,  but  nobody 
really  knew  why.  All  they  were  doing  was  pumping  out  cartridges 
and  selling  millions  of  units,  but  there  was  no  strategic  thinking 
going  on." 

By  1983,  the  $3  billion  video-game  industry  had  turned  into  a 
trickle — $100  million  in  sales  for  the  entire  industry— yet  Atari  and 
dozens  of  other  companies  were  still  churning  out  games  by  the 
millions.  Bushnell  says  it  was  "an  absolutely  unconscionable  screw- 
up"  on  the  part  of  Atari  that  destroyed  the  video-game  industry. 
"They  expected  the  market  to  double  when  all  rational  thought 
said  that  it  couldn't.  The  red  ink  poured  forth."  This  devastated 
Warner  Communications.  Its  stock  went  into  a  tailspin,  plunging 
the  company  into  a  takeover  battle  with  Rupert  Murdoch.  Steve 
Ross  announced  that  Atari's  troubles  were  responsible  for 
Warner's  announcement  of  a  $283.4  million  loss  for  the  second 
quarter  of  1983,  "the  worst  in  the  company's  history  and  triple 
even  the  most  pessimistic  Wall  Street  forecasts,"  according  to  The 
Wall  Street  Journal. 

Inventory  levels  were  mammoth.  Atari  built  and  then  bulldozed 
almost  6  million  "ET:  The  Extraterrestrial"  games.  Even  more 
astounding,  after  licensing  the  game  from  Namco,  Atari  built  more 
"Pac-Man"  cartridges  than  there  were  players. 

With  the  ludicrous  number  of  games  in  inventory,  prices  were 
slashed.  During  the  years  of  the  decline,  total  unit  sales  actually 
increased,  but  the  dollar  sales  went  to  a  tenth  of  what  they  had 
been.  "Atari  hit  two  billion  in  sales,  and  that  third  year  they  were 
going  for  three,"  Bushnell  says.  "And  that  was  why  they  hit  the 
wall  running  as  fast  as  they  could."  Bushnell  made  a  substantial 
amount  of  money  shorting  Warner  stock. 

"Very  seldom  do  you  have  an  industry  in  which  the  dominant 
player  not  only  abandons  leadership  but  abandons  the  industry;' 
Bushnell  says.  "There  was  nothing  left.  Basically  they  retrenched, 
retrenched,  retrenched,  and  didn't  really  try  anything  innovative. 
Nobody  had  enough  cash  to  do  anything  for  a  long  time.  There  was 
not  a  single  innovation  in  product  line  at  Atari  after  the  day  I  left. 
Everything  they  did  was  just  variation  on  the  chip  sets  and  the 


REVERSAL    OF    FORTUNE  151 


business  I  created.  Atari  abandoned  the  game  market  to  Nintendo, 
pure  and  simple,  and  it  abandoned  the  computer  market  to  Apple 
and  then  IBM." 

The  dumping  and  discounting  of  cartridges  eroded  the  market, 
and  Atari  and  Mattel  nearly  went  bankrupt.  Coleco  did  better,  but 
not  because  of  video  games.  It  released  Cabbage  Patch  Kids  and 
sold,  in  all,  more  than  half  a  billion  of  them. 

The  year  Atari  recorded  losses  of  $200-$300  million,  Ray  Kas- 
sar,  who,  as  Atari's  chairman,  was  running  everything  for  Warner, 
needed  to  find  a  way  to  keep  things  going  in  a  video-game  market 
that  had  suddenly  vanished,  as  well  as  in  the  rough-and-tumble 
computer  business.  He  tried  a  number  of  things,  several  of  them 
having  to  do  with  a  certain  company  that  had  been  doing  phenom- 
enal business  in  Japan. 

Nintendo's  dealings  with  Atari  began  when  Atari  licensed  "Don- 
key Kong"  for  its  home  computer.  Kassar  and  Skip  Paul,  Atari's 
senior  vice-president,  invited  Minoru  Arakawa  and  Howard  Lin- 
coln to  their  Silicon  Valley  offices  for  a  meeting.  Arakawa  and 
Lincoln  met  with  a  dozen  vice-presidents  ("of  everything  imagin- 
able," Lincoln  says),  twenty  executives  in  all,  in  the  corporate  din- 
ing room.  Kassar  boasted  that  his  chef  was  from  one  of  the  best 
restaurants  in  the  world,  and  the  meal  was  exquisite. 

The  meeting  paid  off;  Atari  licensed  "Donkey  Kong"  for  the 
800.  And  because  Hiroshi  Yamauchi  was  pleased  with  the  way  the 
negotiations  had  gone,  one  day  he  called  Arakawa  and  suggested 
that  Nintendo  approach  Kassar  to  see  if  he  was  interested  in  buy- 
ing the  worldwide  rights  to  the  Famicom.  Yamauchi's  idea  was  that 
Nintendo  would  sell  the  machine  in  Japan,  but  Atari,  which  al- 
ready had  a  worldwide  distribution  network,  would  sell  it  in  the 
United  States,  Europe,  and  elsewhere.  The  benefit  would  be  more 
than  a  per-unit  royalty.  Nintendo,  which  on  its  own  might  never  be 
a  contender  outside  Japan,  would,  as  a  partner  of  Atari,  be  able  to 
sell  software  all  over  the  world. 

Atari's  2600  was  outdated  and  the  5200  was  going  nowhere. 
There  was  a  rumor  that  Atari  was  working  on  another,  more  pow- 
erful system,  the  Atari  7800,  but  Yamauchi  was  confident  that  his 
success  in  Japan  carried  far  more  weight  than  anything  in  Atari's 
R&D  labs. 


152  GAME    OVER 


Arakawa  made  the  pitch  to  Kassar,  who  decided  that  his  propo- 
sition made  sense.  He  either  could  release  Nintendo's  Famicom 
under  Atari's  name  or  sit  on  the  Famicom  and  do  away  with  a 
potential  competitor. 

A  meeting  was  set  up  and  Kassar  told  Arakawa  he  would  send 
the  Warner  Communications  corporate  jet,  a  Gulf  Stream,  to  col- 
lect him  and  Howard  Lincoln.  En  route  to  the  airport,  Arakawa 
asked  Lincoln  if  he  expected  lunch  to  be  served  on  the  plane. 
Lincoln  said  there  would  probably  be  no  food  on  the  short  hop 
between  Seattle  and  Sunnyvale.  Arakawa  was  starved,  so  the  two 
headed  to  a  restaurant  before  meeting  the  jet  at  a  private  airport. 

The  jet,  fitted  with  leather  couches  and  gold-plated  ashtrays,  was 
empty  except  for  Arakawa,  Lincoln,  and  the  crew.  Once  it  was 
airborne,  the  pretty  attendant  set  up  dining  tables  with  linen  table- 
cloths and  asked  if  the  two  were  ready  for  lunch.  Arakawa  threw 
Lincoln  a  dirty  look  when  she  served  pate,  fresh  poached  salmon, 
and  Dom  Perignon. 

"Just  eat  the  goddamn  food,"  Lincoln  muttered. 

When  the  jet  landed  in  San  Jose,  two  chauffeurs  escorted  the 
Nintendo  executives  down  a  stairway  into  a  waiting  limousine. 
They  drove  to  Atari's  headquarters,  where  they  were  led  to  a  con- 
ference room.  The  entire  upper-management  staff  was  assembled, 
from  Warner's  Manny  Gerard  and  Kassar  to  Atari's  Skip  Paul  and 
numerous  lawyers  and  vice-presidents  familiar  from  the  "Donkey 
Kong"  negotiations.  In  the  middle  of  the  meeting,  Steve  Ross 
poked  his  head  in  to  say  hello.  He  wanted  to  apologize  for  the  fact 
that  he  had  to  use  the  company's  jet  to  go  back  to  New  York;  he 
had,  he  said,  rented  another  jet  to  take  Arakawa  and  Lincoln  back 
to  Seattle. 

The  meeting  began  with  Arakawa's  description  of  the  Famicom. 
Questions  came  from  Gerard  and  Kassar,  at  the  far  end  of  the 
conference  table,  but  also  from  each  of  the  dozen  lawyers  and 
executives.  Scribbling  notes  and  fielding  most  of  the  questions, 
Lincoln  watched  Arakawa.  "I  can  always  tell  when  he  understands 
something  or  doesn't,  when  he's  pissed  off  or  when  he's  happy," 
Lincoln  says.  "This  time  Arakawa  was  just  amazed  by  all  those 
people,  all  that  bureaucracy." 

Arakawa  and  Lincoln  left  the  meeting  exhausted  and  uncertain 


REVERSAL   OF    FORTUNE  153 


of  how  much  progress  they  had  made.  Back  at  the  airport,  where 
they  boarded  the  smaller  jet  Ross  had  arranged  for  them,  they 
were  trying  to  relax  and  sort  out  the  meeting  when  the  copilot 
came  back  to  tell  them,  "Mr.  Ross  left  you  some  wine."  An  atten- 
dant served  them  bottles  of  a  rare  Bordeaux.  "I  don't  know  how  we 
got  home,"  Lincoln  recalls.  "We  still  had  a  buzz  the  next  day." 

The  next  step  was  for  Atari  to  see  the  Famicom.  Skip  Paul,  along 
with  half  a  dozen  Atari  managers,  joined  Yamauchi,  Arakawa,  and 
Lincoln  in  a  conference  room  at  NCL  in  Kyoto.  The  system  was 
demonstrated  by  Masayuki  Uemura,  who  explained,  through  an 
interpreter,  why  it  was  better  than  any  that  preceded  it. 

Yamauchi  came  and  went  several  times  during  the  meeting.  He 
used  this  disappearing  act  as  a  diversionary  tactic:  he  wanted  ev- 
eryone to  believe  that  he  had  far  more  important  business  going  on 
elsewhere. 

At  the  end  of  the  first  day  of  meetings,  Yamauchi  had  so  success- 
fully confused  the  Atari  delegation  that  Paul  called  Lincoln  at  his 
hotel  to  clarify  some  issues.  Yamauchi  had  Atari  manufacturing 
the  machines  at  very  low  cost.  They  would  have  the  worldwide 
rights  outside  Japan,  and  they  would  have  software  support  from 
NCL.  Nintendo  would  receive  a  relatively  large  royalty  on  each 
machine. 

Throughout  the  week  there  was  persistent  haggling  over  per- 
centage points  of  royalties,  but  Yamauchi  was  getting  everything 
he  wanted.  Finally  Lincoln  used  one  of  Yamauchi's  dramatic  disap- 
pearances to  full  effect:  he  said  that  Yamauchi  was  growing  impa- 
tient. The  deal  had  better  be  sewn  up  immediately  or  Yamauchi 
might  decide  to  forget  the  whole  thing.  "You  don't  want  Mr. 
Yamauchi  to  become  annoyed,"  Lincoln  said. 

At  the  eleventh  hour,  the  Atari  negotiators  retreated  to  a  private 
office  to  telephone  Ray  Kassar  in  California,  who  was  in  touch  with 
Manny  Gerard  in  New  York.  Yamauchi  came  back  into  the  room 
with  Arakawa  and  Lincoln.  Lincoln  said,  "Mr.  Yamauchi,  you 
shouldn't  be  in  here.  If  the  Atari  people  come  back  in  and  you're 
here,  they'll  take  it  as  a  sign  that  you  are  overanxious." 

The  chairman  gave  Lincoln  a  look  that  instantly  humbled  the 
cocky  attorney.  Yamauchi  had  his  own  negotiating  tactics;  he 
didn't  need  an  arrogant  young  lawyer  from  America  to  tell  him 


GAME    OVER 


what  to  do.  He  remained  in  the  room  as  the  Atari  team  returned. 
Paul  said  that  the  deal  was  as  good  as  done  and  asked  Lincoln  to 
write  up  the  contracts.  They  would  all  meet  again  in  a  month  at  the 
June  Consumer  Electronics  Show  in  Chicago  to  sign  the  papers. 
Yamauchi  rose  and  left  the  meeting.  Handshakes  and  backslapping 
signaled  that  the  negotiations  had  been  a  success. 

Yamauchi  flew  to  Chicago  for  the  CES,  which  he  attended  with 
Arakawa  and  Lincoln.  In  the  convention  center,  they  walked  past 
Coleco's  booth,  where  the  company  was  showing  off  its  new  home 
computer,  Adam,  set  in  an  artfully  lit  glass  case.  There,  playing  on 
the  sharp  color  screen,  was  "Donkey  Kong." 

Coleco's  stock  shot  up  almost  twenty  points  that  day,  and  Atari 
was  not  amused  when  it  saw  the  Nintendo  game  playing  on  its 
competitor's  machine. 

Ray  Kassar's  office  sent  a  tersely  worded  letter  to  Arakawa 
threatening  not  only  to  cancel  the  deal  Skip  Paul  had  made,  but 
also  legal  action.  Atari,  which  owned  the  floppy-disk  computer- 
game  rights  to  "Donkey  Kong,"  thought  that  Nintendo  had 
double-crossed  them  and  sold  the  game  to  Coleco. 

Howard  Lincoln  arranged  an  emergency  meeting  with  Coleco's 
president,  Arnold  Greenberg,  that  night  in  Nintendo's  hotel  suite. 
Present  when  the  meeting  began  were  Minoru  and  Yoko  Arakawa, 
Ron  Judy,  Howard  Lincoln,  and,  representing  Coleco,  Greenberg 
and  several  of  his  colleagues.  There  was  also  a  translator. 

Everyone  sat  around  a  table.  Arakawa  whispered  to  Lincoln, 
"Don't  say  anything.  Mr.  Yamauchi  will  do  this." 

Arnold  Greenberg,  a  distinguished-looking  man,  gray  at  the 
temples,  ready  to  celebrate  because  of  the  computer  Adam's  ap- 
parent success,  asked  where  Yamauchi  was.  Yoko  assured  him  that 
her  father  would  be  there  in  a  moment. 

Yamauchi  entered  the  room  abruptly  and,  without  addressing 
anyone,  stood  at  the  end  of  the  table.  He  became,  as  one  of  those 
present  put  it,  "unglued." 

He  began  with  a  breathy,  high-pitched  tirade  in  a  Marlon 
Brando  monotone  and  quickly  became  loud  and  abusive.  With  a 
piercing  cry,  he  swung  his  arm  in  an  arc  in  front  of  him,  shooting 
his  outstretched  index  finger  toward  Greenberg. 


REVERSAL   OF    FORTUNE 


Yamauchi's  diatribe,  all  in  Japanese,  completely  stunned  every- 
one in  the  room,  with  the  possible  exception  of  the  Arakawas. 
Howard  Lincoln  says,  "It  scared  the  hell  out  of  me." 

The  Coleco  people  weren't  aware  that  they  had  messed  up  Nin- 
tendo's lucrative  Atari  deal — millions  of  dollars  were  in  the  bal- 
ance—but they  could  see  that  they  had  somehow  incurred 
Yamauchi's  unfathomable  wrath.  When  Greenberg  turned  to 
Arakawa  for  help,  he  was  met  with  a  cold  stare.  By  the  time 
Yamauchi  wound  down,  no  one  in  the  room  said  a  word. 

The  translator  finally  began  to  speak.  "Mr.  Yamauchi  is  very 
upset,"  the  man  said. 

This  understatement  underscored  the  fact  that  the  Coleco  team 
could  have  no  recourse  but  to  roll  over.  The  translator  continued, 
calmly  reciting  the  gist  of  the  outburst,  but  Yamauchi  had  already 
won.  Greenberg's  excuses — he  said  that  Coleco  considered  the 
Adam  a  computer  with  a  video-game  machine  inside— were  feeble. 
He  then  tried  to  turn  it  on  Lincoln,  blaming  him  for  "the  misun- 
derstanding." This  made  Lincoln  furious;  he  was  about  to  jump  up 
to  respond  when  he  felt  Arakawa  firmly  grasp  his  forearm,  holding 
him  still. 

Yamauchi  spoke  again,  never  wavering.  He  made  it  clear  that 
there  was  nothing  else  to  be  said.  No  excuses  would  be  listened  to. 
Coleco  had  to  refrain  from  selling  "Donkey  Kong"  on  Adam  and 
announce  the  mistake,  or  there  would  be  a  lawsuit  that  would  leave 
nothing  of  the  company.  There  was  no  doubt  that  he  meant  it. 

Greenberg  and  his  colleagues  retreated  from  the  suite,  shaken. 
Afterward,  at  dinner  in  the  hotel's  Japanese  restaurant,  Yamauchi, 
his  tie  loosened,  turned  to  Howard  Lincoln,  who  was  still  in  a  state 
of  shock,  and  said,  "Sometimes  this  is  the  way  you  have  to  handle 
people,  Mr.  Lincoln.  What  did  you  think  about  that  perfor- 
mance?" 

The  Coleco  imbroglio  ended  up  being  irrelevant  to  Nintendo's 
deal  with  Atari,  which  fizzled  out  of  its  own  accord— mostly  be- 
cause Atari  was  itself  unraveling.  A  month  after  the  CES,  in  July 
1983,  Ray  Kassar  was  axed  from  Atari. 

In  September,  Manny  Gerard  hosted  a  meeting  between  Atari, 
Nintendo,  and  Coleco  in  his  office  at  Warner  in  New  York.  Skip 


1  5B  GAME    OVER 

Paul  and  his  staff  came  in  from  California.  Arnold  Greenberg  and 
the  Coleco  bigwigs  were  there,  as  were  Minoru  Arakawa  and  How- 
ard Lincoln. 

Gerard's  office,  with  inlaid  wood  paneling,  had  a  ticker-tape 
machine  spewing  out  the  latest  market  numbers  and  a  bank  of 
telephones  with  some  sixty  lines.  Gerard  explained  that  he  was 
changing  the  office's  decor — some  new  artwork  was  expected  any 
day.  As  Arakawa  took  all  this  in,  he  knew  that  Warner  was  also 
laying  off  hundreds  of  employees  and  losing  a  fortune  each  quar- 
ter. 

At  the  meeting  a  tentative  compromise  was  agreed  upon — 
"Donkey  Kong"  was  divvied  up  so  that  Atari's  deal  with  Nintendo 
could  proceed — but  the  issues  soon  became  academic.  Coleco's 
Adam  was  a  disaster  and  soon  disappeared,  and  Nintendo  learned 
(from  an  attorney  who  left  Warner)  that  Atari  never  had  the 
money  to  buy  the  Famicom;  the  negotiation  was  a  charade  orches- 
trated to  tie  Nintendo  up  and  remove  a  potential  competitor  and 
perhaps  to  learn  something  new  about  video-game  hardware  and 
software.  When  the  message  reached  Minoru  Arakawa  that  the 
Atari  deal  was  dead,  he  thought  it  was  a  disaster.  He  called 
Yamauchi  with  the  bad  news.  Potential  millions  had  slipped 
through  their  fingers,  he  felt. 

The  event,  however,  was  seminal.  Years  later  Arakawa  said, 
"Can  you  believe  that  we  almost  sold  the  whole  thing?  If  we  had, 
no  one  outside  of  Japan  would  know  about  Nintendo." 

Any  remnants  of  the  home  video-game  business  in  America  all 
but  disappeared.  In  1984  Mattel  sold  off  its  electronics  division. 
Arnold  Greenberg  folded  Coleco.  At  Atari,  to  replace  Ray  Kassar, 
Manny  Gerard  brought  in  Jim  Morgan  from  Philip  Morris,  where 
his  background  in  marketing  cigarettes  hardly  prepared  him  for 
the  video-game  business.  Morgan  bragged  to  employees  that  his 
seven-year,  multimillion-dollar  contract  gave  him  the  freedom  to 
run  the  company  any  way  he  saw  fit. 

However,  as  a  former  Atari  executive  told  Business  Week, 
"Rome  was  burning  and  he  was  fiddling  around."  Atari  reported  a 
$536  million  loss  in  the  first  nine  months  of  1983.  Games  that  were 
meant  to  be  priced  at  $40  were  selling  for  $4.  Morgan  consolidated 


• REVERSAL    OF    FORTUNE  157 

Atari's  forty  offices  around  Silicon  Valley  to  about  twenty-eight 
and  killed  all  but  nine  of  Atari's  new  development  projects.  He  let 
go  a  quarter  of  the  company's  employees.  But  the  cuts  were  too 
little  too  late.  Steve  Ross,  whom  Morgan  once  called  "the  best  man 
with  numbers  I  have  ever  seen,"  had  had  enough.  Atari  was  taken 
away  from  Morgan  on  July  6,  1984.  He  was  never  told  that  Steve 
Ross  had  decided  to  break  up  Atari  and  sell  its  pieces. 

Atari's  hardware  divisions — the  video-game  systems  and  com- 
puters—were sold  to  Jack  Tramiel,  founder  of  Commodore  Busi- 
ness Machines,  for  $240  million  in  notes  (Warner  retained  25 
percent  of  the  company).  Tramiel  believed  that  his  new  company, 
called  Atari  Corporation,  could  go  up  against  Apple  and  Commo- 
dore. He  had  been  virtually  kicked  out  of  Commodore,  and  he 
imagined  a  sweet  revenge.  Since  Tramiel,  who  planned  to  run  Atari 
with  his  three  sons,  had  no  interest  in  the  coin-op  business,  Warner 
sold  it  to  Masaya  Nakamura,  and  Atari  Games  became  a  subsid- 
iary of  Namco.  Under  the  agreement  Atari  Games  could  do  any- 
thing except  make  hardware  or  software  that  competed  with 
Tramiel's  Atari  Corporation  under  the  Atari  name. 

"I  look  at  it  sadly,"  Nolan  Bushnell  says,  surveying  the  devasta- 
tion of  the  company  he  founded.  "You  can't  help  but  have  a  cer- 
tain feeling  for  a  name  that  you  chose  out  of  the  universe."  He 
adds,  "See,  Atari  could  have  been  Nintendo  and  Apple  under  one 
roof." 

The  home  video-game  business  was  dead.  The  consensus  was 
clear:  no  one  in  America  wanted  anything  to  do  with  video  games. 

But  Minoru  Arakawa,  picking  through  the  rubble,  noticed  that 
there  was  one  group  of  people  who  were  oblivious  to  all  the  death 
notices  and  eulogies.  Video  arcades  were  still  packed,  bringing  in 
more  money  than  first-run  movies:  billions  of  dollars.  Perhaps, 
Arakawa  wondered,  it  was  not  a  lack  of  interest  in  home  video 
games  that  had  killed  off  the  American  industry.  Perhaps  it  was  the 
kind  of  sloppy  business  he  had  witnessed  during  his  glimpses  inside 
Atari  and  Warner  that  was  to  blame. 

He  decided  to  find  out. 


\ 


\ 


\     8 

ENTER  THE  \v 

DRAGON  ^ 


"The  reason  I  have  this  terrific  job,"  a  buyer  for  a  toy  company 
began,  "is  that  the  guy  before  me  was  fired  after  he  lost  so  much  in 
video  games.  Do  you  think  there  is  any  way  I'm  going  to  make  that 
mistake?" 

Throughout  1984,  Arakawa  heard  variations  on  that  theme  over 
and  over  when  he  met  with  toy-  and  department-store  representa- 
tives to  tell  them  he  was  considering  entering  the  home  video- 
game business.  They  thought  he  was  nuts. 

Arakawa  marveled  at  the  intensity  of  the  hostility  toward  video 
games — even  the  phrase  was  taboo.  In  the  horror  stories  about  the 
industry,  hyperbole  was  unnecessary.  One  of  the  legions  of  former 
Atari  vice-presidents  (who  retreated  into  his  father's  pharmaceuti- 
cal business  after  the  crash)  said  he  watched  millions  of  unsold 
game  cartridges  being  bulldozed  into  a  landfill.  Destroyed  careers, 
divorces,  and  a  suicide  were  blamed  on  the  Atari  crash.  "It  would 


ENTER    THE    DRAGON  1  59 

be  easier,"  one  former  toy-industry  executive  told  Arakawa,  "to 
sell  Popsicles  in  the  Arctic." 

On  the  other  hand,  there  was  no  letup  in  the  sales  of  the 
Famicom  in  Japan.  Were  Tokyo  and  Darien  that  different? 

Arakawa,  Howard  Lincoln,  Ron  Judy,  and  Bruce  Lowry  visited 
arcades,  toy  retailers,  merchandisers,  discounters,  specialty  stores, 
software  developers,  former  Atari  and  Coleco  managers  and  exec- 
utives, and  anyone  else  with  experience  or  opinions  about  video 
games.  "We  kept  trying  to  zero  in  on  what  we  shouldn't  do,"  Lin- 
coln says.  What  they  most  often  heard  was  that  they  shouldn't  do 
anything  at  all.  But  there  was  a  consensus  that  the  "suck  factor" 
was  one  of  the  biggest  reasons  for  the  industry's  crash.  The  market 
had  been  glutted  with  terrible  games.  "Pac-Man"  was  a  blast  in 
arcades,  but  the  home  version  "sucked."  "ET,"  ridiculously  hyped, 
"sucked."  "Zombies  from  Pluto  Stole  My  Girlfriend"  "really 
sucked." 

Bad  games  such  as  these  would  never  have  survived  in  the  ar- 
cades; kids  would  have  tried  them  and  deserted  them.  But  there 
had  been  no  easy  way  to  test  home  games.  Fancy  boxes  and  expen- 
sive advertising  campaigns  made  promises,  and  when  the  promises 
were  unfulfilled,  the  customers  stopped  believing  them.  Systems 
and  games  went  into  the  garbage. 

Arakawa  came  to  realize  that  it  didn't  matter  how  much  money 
was  spent  on  marketing,  advertising,  and  promotion  if  the  games 
weren't  good  enough.  As  a  Nintendo  slogan  later  acknowledged, 
"The  name  of  the  game  is  the  games."  Arakawa  also  knew  that  he 
had,  if  nothing  else,  great  games.  Sigeru  Miyamoto's  "Super  Mario 
Bros."  and  "The  Legend  of  Zelda"  would  blow  these  kids  away. 
The  question,  then,  was  how  he  could  get  them  to  understand  that 
Nintendo's  new  system  was  like  nothing  they  had  ever  seen. 

There  was  much  to  be  done. 

Arakawa  felt  it  was  vital  that  the  Nintendo  system  be  distin- 
guishable from  its  predecessors.  He  decided  it  should  be  clear 
from  the  outset  that  the  Nintendo  system  wasn't  a  toy.  If  it  was 
marketed  as  a  more  sophisticated  electronics  product,  the  com- 
pany could  disassociate  from  the  Atari,  Coleco,  and  Mattel  sys- 


GAME    DVER 


terns.  There  were  other  reasons  to  stay  far  away  from  the  toy 
business.  December  10  dating,  which  had  helped  devastate  Nin- 
tendo when  it  was  selling  Game  &  Watches,  was  one.  As  a  con- 
sumer-electronics company,  Nintendo  could  take  orders,  deliver 
systems,  and  send  bills  that  were  due  in  thirty  or  sixty  days.  The 
marketing  perspective  would  therefore  be  broadened:  to  include 
mass  merchandisers,  electronics  stores,  and  discounters  as  well  as 
the  toy  chains. 

To  interest  an  extended  base  of  retailers,  Arakawa  wanted  the 
system  to  be  more  than  a  game  machine;  it  should  have  the  capa- 
bilities of  a  small  computer.  NCL  engineers  were  given  the  task  of 
developing  peripherals,  including  a  keyboard,  a  music  keyboard, 
and  a  tape-storage  device.  They  came  up  with  new,  high-tech,  in- 
frared remote  controllers  and  a  cool  Zapper  gun  to  play  shooting 
games.  All  these  options  indicated  that  the  Nintendo  machine  was 
both  a  giant  step  forward  from  the  old-wave  systems  and  a  new 
kind  of  system  altogether.  Parents  would  be  more  likely  to  buy  it 
because  it  could  do  more  for  their  kids  (the  keyboards,  for  exam- 
ple, promised  educational  and  cultural  value). 

The  R&D  teams  in  Kyoto  modified  the  system  while  Arakawa 
had  some  of  his  people  in  Seattle  design  the  housing  and  packag- 
ing. A  young  designer  named  Lance  Barr  was  assigned  to  make  a 
system  that  looked  high-tech  sleek  yet  accessible.  The  main  com- 
puter board  and  circuitry  were  nearly  identical  to  the  Famicom, 
but  Barr  fit  them  inside  a  slimmer  and  handsomer  box.  Gray  and 
squarish,  it  looked  more  like  a  stereo  component  than  the  red-and- 
white  plastic  Famicom.  The  remote-control  unit  was  understated; 
it  could  have  been  featured  in  a  Sharper  Image  catalogue.  The 
Zapper  gun  might  have  belonged  to  Luke  Skywalker,  the  key- 
boards were  slender  and  svelte,  and  the  joystick  looked  like  it 
belonged  in  a  jet  fighter.  The  system  was  given  a  name  to  reflect  its 
maturity:  the  Advanced  Video  System,  or  AVS. 

The  major  headache  of  counterfeiting  also  had  to  be  addressed. 
The  problem  was  the  apparent  impossibility  of  making  an  un- 
counterfeitable  machine  or  uncopiable  software.  There  was  also  a 
related  problem.  Ron  Judy  said  that  to  avoid  the  "suck  factor," 
Nintendo  had  to  have  a  way  of  controlling  the  quality  of  software 
released  for  the  AVS.  Also,  Judy  pointed  out,  if  the  AVS  could  run 


ENTER    THE    DRAGON  1B1 

the  same  games  that  ran  on  the  Famicom,  illegal  Taiwanese  games 
would  flood  the  U.S.  market.  "We  need  a  security  system,"  he  said, 
and  Yamauchi  and  Hiroshi  Imanishi  set  the  NCL  engineers  on  the 
task  of  creating  one. 

NCL's  attempts  to  stop  rip-offs  in  Japan,  including  the  periodic 
system  revisions,  had  been  only  partly  effective.  The  licensing 
agreements  also  helped,  but  outfits  that  were  going  to  counterfeit 
hardware  or  software  didn't  care  about  licensing  agreements.  Had 
NCL  decided  to  put  a  security  chip  in  the  Famicom,  it  might  not 
have  lost  some  of  the  huge  markets  of  the  Pacific  Rim.  In  addition, 
it  might  have  been  able  to  stop  companies  like  Hacker  Interna- 
tional from  releasing  nonapproved  games. 

The  security  system  the  Japanese  engineers  devised  was  a  com- 
plex implementation  of  a  simple  lock-and-key  concept.  The  AVS 
wouldn't  work  unless  a  chip  in  the  cartridges  unlocked,  or  shook 
hands  with,  a  chip  in  the  AVS.  The  key  was  a  kind  of  song  the  two 
chips  sang  to  one  another.  If  a  cartridge  was  inserted  into  the 
machine  that  didn't  know  the  song,  the  system  would  freeze. 

Nintendo  called  the  invention  a  "security  chip,"  but  it  was  re- 
ferred to  in  the  industry  as  a  "lock-out"  chip;  it  stopped  more  than 
counterfeiters  because  no  one  could  manufacture  their  own  games 
for  the  AVS  without  Nintendo's  approval.  Only  Nintendo  had  ac- 
cess to  the  technology,  including  the  specific  computer  code  at  its 
heart.  Lincoln  had  copyright  and  patent  applications  filed  for  the 
security  system. 

While  the  security  system  was  being  developed,  Arakawa  asked 
Don  James  to  recommend  the  best  NCL  games  for  the  AVS. 
James  and  Howard  Phillips  played  hundreds  of  games  and  gave 
Arakawa  a  list  of  their  favorites.  Arakawa  chose  forty  and  sent 
instructions  to  Japan  to  prepare  English-language  versions. 

The  AVS  was  to  debut  at  the  January  1984  Consumer  Electron- 
ics Show.  Don  James  designed  a  booth  for  the  occasion — more 
substantial  than  the  one  in  which  Nintendo  had  shown  Game  & 
Watch.  Nervously,  James,  Arakawa,  Lincoln,  and  Phillips  traveled 
to  Las  Vegas  with  AVS  demos  and  boxes  full  of  brochures.  "The 
evolution  of  a  species  is  now  complete,"  the  brochure  announced. 
On  the  cover  was  a  picture  of  three  televisions.  Playing  on  one  was 
"Pong,"  a  few  dreary  white  lines  on  a  black  screen.  Playing  on 


1  62  GAME    OVER 

another  was  a  color  tennis  game,  roughly  animated  blue-and- 
yellow  stick  figures  on  either  side  of  a  net.  The  third  screen  was 
veiled  in  a  red  cloth.  Inside  the  brochure  the  system,  with  its  nu- 
merous peripherals,  was  introduced.  "Ninety  percent  of  the  Japa- 
nese market  won't  play  anything  else.  Welcome  to  the  future  of 
American  home  video  entertainment." 

The  show  opened  and  Arakawa,  James,  and  Lincoln  excitedly 
manned  the  booth  while  Howard  Phillips  demonstrated  games. 

The  AVS  looked  impressive,  the  Nintendo  representatives  were 
told.  But  almost  all  those  who  stopped  by  at  the  booth  shook  their 
heads  when  asked  if  they  would  consider  placing  an  order.  "The 
memories  of  Atari  were  too  recent,"  Lincoln  says. 

Although  Nintendo  tried  again  at  the  industry's  June  show,  it 
was  clear  that  Arakawa  had  misjudged  his  ability  to  overcome 
skepticism.  He  hadn't  been  able  to  create  the  new  category  that 
combined  computer  power  and  entertainment.  No  one  cared 
about  the  remote  control,  and  they  hated  the  keyboard — a  turnoff 
to  kids,  industry  executives  believed  (parents  were  irrelevant).  The 
AVS  had  all  the  problems  not  only  of  the  video-game  business  but 
of  computers  too.  No  one  would  touch  it. 

Back  to  the  drawing  board.  Instead  of  attempting  to  improve  on 
the  video-game  systems  of  the  past,  Arakawa  decided  that  he 
should  figure  out  a  completely  new  way  to  sell  it.  He  scrapped  the 
computer  peripherals.  Kids  wanted  fun,  not  BASIC  programming 
languages  and  cassette-tape  storage  drives.  They  tossed  out  the 
keyboard,  the  piano  keyboard,  and  the  remote-control  unit  as  well 
as  the  name.  R&D  1  was  put  in  charge  of  a  new  peripheral  that 
would  make  the  system  something  other  than  a  video-game  ma- 
chine. 

In  Japan,  Gunpei  Yokoi's  team  came  up  with  ROB,  or  Robotic 
Operating  Buddy.  He  was  one  foot  high,  gray,  legless,  and  he  really 
didn't  do  much.  He  was  controlled  by  the  video-game  system.  The 
flashing  of  the  television  screen  activated  a  chip  in  ROB's  head 
that  caused  him  to  move.  Players  controlled  him  at  the  same  time 
they  controlled  action  on  the  screen.  In  games  designed  for  ROB, 
such  as  "Gyromite"  and  "Stack-Up,"  players  would  cause  the 
robot  to  pick  up  chips  from  one  stack  and  drop  them  onto  a  pad 
that  triggered  a  door  in  an  on-screen  game.  More  than  anything, 


ENTER    THE    DRAGON  1B3 

ROB  looked  cool.  He  would  be  used  to  sell  the  video-game  ma- 
chine. 

James  and  Barr  worked  on  a  new  design  for  the  system— again 
high-tech  gray,  but  boxier.  Game  cartridges  slid  into  the  front 
instead  of  the  top,  and  revised  controllers  were  attached  by  plastic 
cords.  It  wasn't  toylike— it  still  looked  like  a  consumer  electronics 
product — but  it  was  simpler  than  AVS.  Nintendo  de-emphasized 
the  box  in  favor  of  ROB  and  the  Zapper  gun. 

At  the  June  1985  Consumer  Electronics  Show,  Nintendo 
debuted  what  Arakawa  had  renamed  the  Nintendo  Entertainment 
System,  or  the  NES.  The  operative  word  was  entertainment.  Ev- 
erything Nintendo  would  do  to  sell  the  machine  would  emphasize 
this. 

The  reaction  at  the  new  show  was  somewhat  better.  Buyers  liked 
ROB.  Still,  they  were  reluctant  to  place  orders. 

Arakawa  stubbornly  ignored  the  reaction.  He  said  that  the  peo- 
ple in  the  industry  were  jaded.  Kids  would  love  it,  he  believed.  To 
prove  it,  he  commissioned  focus-group  studies  in  New  Jersey. 
From  behind  a  one-way  mirror,  he  watched  a  random  sampling  of 
young  boys  play  the  NES  and  heard  them  say  how  much  they  hated 
it.  lypical  was  the  comment  of  an  eight-year-old:  "This  is  shit!" 

Depressed,  Arakawa  wondered  if  he  should  give  up,  and  in  a 
conversation  with  Hiroshi  Yamauchi,  he  said  as  much.  Yamauchi 
denounced  such  fatalism.  The  market  in  America  wasn't  that  dif- 
ferent from  the  Japanese  market,  he  said.  "But  the  tests 
show  .  .  ."  Yamauchi  interrupted  him.  "Ignore  them,"  he  said. 
"Tiy  to  sell  the  system  in  one  American  city.  Then,  if  it  fails,  it  fails. 
But  we  must  get  it  into  the  hands  of  the  customer.  That  is  the  only 
test  that  matters." 

Arakawa,  Ron  Judy,  Howard  Lincoln,  and  Yamauchi  considered 
the  location  of  the  test.  Judy  thought  they  should  start  a  limited 
test  in  a  small  town,  but  Yamauchi  shook  his  head.  "What  is  the 
most  difficult  town  to  start  in?"  he  asked. 

The  answer  was  obvious:  New  York  City. 

Yamauchi  asked  why. 

Besides  the  obvious  hurdles  of  New  York's  competitive  market, 
it  also  had  been  hit  the  hardest  by  the  crash  of  the  industry  in  1983. 
What's  more,  much  of  the  excess  inventories  had  been  dumped 


164  GAME    OVER 


there — not  to  mention  that  New  York  had  the  most  savvy  and 
cynical  buyers  in  the  country. 

Yamauchi  said  that  New  York  was  where  they  should  go.  He 
gave  Arakawa  a  budget  of  $50  million. 

In  late  summer  1985,  Arakawa  leased  a  warehouse  in  Hacken- 
sack,  New  Jersey,  bordered  by  a  railroad  and  a  cemetery.  There 
were  no  windows.  The  only  light  in  the  cavernous  room  was  from  a 
few  dangling  naked  bulbs,  and  it  was  spooky  and  depressing. 

Arakawa  brought  about  thirty  NOA  employees  East.  Ron  Judy 
and  Bruce  Lowry  were  the  first  to  arrive.  Then  a  deputation  of 
twelve  more — they  called  themselves  the  SWAT  team — flew  out 
and  landed  in  Newark  in  the  middle  of  a  hurricane. 

At  the  terminal,  twelve  rented  cars  awaited  the  team.  They  trav- 
eled in  a  shaky  caravan  to  the  warehouse,  which  was  flooded.  As 
the  group  surveyed  the  dreary  headquarters,  Arakawa  cheered 
them  on.  "If  we  can  just  get  players  to  see  it,  it  will  be  really  big, "  he 
said.  "I  know  we  can  do  it.  It's  a  big  job,  but  everything  worthwhile 
is  difficult.  We  just  have  to  get  it  to  the  players.  If  we  do,  it  will  be 
really,  really  big." 

He  got  through  to  them.  An  ebullient  chorus  came  back:  "Yeah! 
It  will  be  big." 

Arakawa  said,  "It  will  be  really  big." 

They  echoed,  "Really,  really  big." 

Other  employees  arrived  over  the  next  month.  From  Japan  there 
was  Shigeru  Ota,  who  did  the  books,  and  a  technician,  Masahiro 
Ishizuka.  Cindy  Wilson  was  an  executive  assistant.  Others  included 
Rob  Thompson,  who  became  the  service  manager.  Howard  Phil- 
lips, who  had  become  shipping-warehouse  manager  of  coin- 
operated  games,  was  flown  in.  "We  felt  like  the  elite  point  team," 
Phillips  says. 

Judy,  Ota,  and  Ishizuka  lived  in  a  New  Jersey  house  Nintendo 
had  rented.  Their  furniture  consisted  of  wooden  boxes  and  suit- 
cases that  they  never  entirely  unpacked.  The  house  doubled  as  a 
place  to  store  spare  parts,  and  it  also  became  Nintendo's  after-sale 
service  center.  Other  employees  lived  in  rented  condos  and  apart- 
ments, two  to  five  to  a  place,  all  furnished  with  junk-sale  furniture 
and  mattresses  on  the  floor.  Rob  Thompson,  Howard  Phillips,  and 


ENTER   THE    DRAGON  1B5 

Don  James  lived  together  in  a  townhouse  in  Fort  Lee.  Howard 
Phillips  woke  up  every  morning  at  six  and  made  his  way  to  the 
shower,  where  he  sang  opera.  Thompson  and  James  threatened  to 
murder  him. 

The  various  groups  carpooled  to  the  warehouse  in  the  morning 
and  worked  all  day,  breaking  in  the  evening  for  dinner  at  a  neigh- 
borhood coffee  shop.  Then  they  returned  to  work  and  stayed  late 
into  the  night. 

Howard  Lincoln  sent  posters  of  Seattle  for  the  SWAT  team  to 
put  up  in  the  warehouse  so  it  wouldn't  be  so  dreary.  He  and 
Arakawa,  shuttling  between  Seattle  and  New  York,  made  calls  on 
retailers,  as  did  Bruce  Lowry.  Judy  met  with  advertising  agencies 
and  planned  a  promotion  campaign.  Other  SWAT-team  members 
manned  the  telephones,  trying  to  convince  buyers  for  large  and 
small  stores  to  see  them.  They  pressed  shopping-mall  managers  to 
allow  them  to  demonstrate  the  NES.  Arakawa  used  some  of  his 
budget  to  sign  up  professional  athletes  for  the  demonstrations. 
Mall  managers  were  far  more  open  to  the  idea  of  having  famous 
ball  players  come  by  than  businesspeople  representing  an  un- 
known company  with  a  strange  Japanese  name. 

In  October  the  push  began  in  earnest.  In  pairs,  the  SWAT  team 
hit  the  pavements,  visiting  department  stores  and  large  and  small 
toy  and  electronics  retailers.  They  worked  to  convince  companies 
such  as  Toys  "R"  Us,  Sears,  Circuit  City,  and  Macy's.  Although 
Charles  Lazarus,  founding  chairman  of  Toys  "R"  Us,  and  a  very 
few  others  were  receptive,  most  people  could  not  pronounce  Nin- 
tendo and  were  not  interested  in  learning  how. 

Arakawa  realized  that  the  only  way  around  the  retailers'  reluc- 
tance was  to  make  it  a  risk-free  proposition.  Yamauchi,  however, 
had  trouble  with  this  idea.  He  couldn't  understand  why  he  should 
offer  a  complete  money  back  guarantee;  Nintendo  had  never  had 
to  operate  from  a  position  of  weakness.  Arakawa  argued  that  the 
ultimate  sign  of  strength  is  to  have  so  much  confidence  in  your 
product  that  you  would  almost  pay  stores  to  carry  it.  Yamauchi 
didn't  need  to  tell  him  how  risky  the  tactic  was. 

Nintendo,  Arakawa  announced,  would  stock  the  stores  and  set 
up  displays  and  windows.  Nobody  had  to  pay  for  anything  for 
ninety  days.  After  that  period,  stores  would  pay  Nintendo  for  what 


1  BB  GAME    OVER 

they  had  sold  and  could  return  the  rest.  It  was  an  offer  store  buyers 
couldn't  refuse,  although  it  was  still  greeted  with  skepticism.  Then, 
one  by  one,  companies  agreed.  "It's  your  funeral,"  one  buyer  said. 

Many  of  the  Nintendo  team  worked  eighteen-hour  days,  seven 
days  a  week  for  the  three  months  that  preceded  Christmas  1985. 
Ron  Judy  would  load  up  a  couple  of  rented  vans  with  Don  James's 
displays  and  drive  to  Long  Island  or  Westchester  County  or  some 
other  New  York  suburb.  In  malls  the  team  set  up  colorful  booths 
with  twelve  or  so  monitors,  each  one  attached  to  an  NES.  They 
arrived  in  the  middle  of  the  night  and  worked  until  four  o'clock  in 
the  morning  setting  up  the  displays,  then  drove  home  to  sleep  for  a 
few  hours.  The  next  day  they  headed  back  to  the  malls,  where  they 
stood  next  to  Mets  stars  who  were  signing  autographs  and  tried  to 
get  passersby  to  listen  to  their  spiel.  Mookie  Wilson  and  Ron  Dar- 
ling even  played  NES  baseball,  projected  on  a  large-screen  TV. 

"The  trick  was  to  get  people  to  come  over,"  Arakawa  says.  "If 
we  could  get  it  in  the  hands  of  the  consumers,  they  would  be 
convinced." 

Howard  Phillips  turned  out  to  be  one  of  the  team's  best  spokes- 
men; he  had  a  knack  for  communicating  his  own  enthusiasm,  punc- 
tuating his  sentences  with  words  like  cool  and  neat.  He  grabbed 
kids,  old  ladies — anyone — and  before  his  victims  realized  what  had 
hit  them,  he  had  them  playing. 

At  one  mall,  the  Nintendo  team  spent  all  night  setting  up  its 
booth  to  be  ready.  Just  as  the  crowds  poured  in,  the  mall's  director 
came  over  and  forbade  them  to  turn  on  the  games;  "They  attract 
the  wrong  sort  of  crowd,"  she  said.  She  had  only  wanted  to  meet 
the  baseball  stars. 

Days  such  as  this  made  the  Nintendo  employees  wonder  what 
they  were  doing.  "We're  overworked,  underpaid,  we  don't  see  our 
families,  nobody  wants  what  we're  selling — what's  the  point?"  they 
whined.  Ron  Judy  would  buy  them  all  dinner  and  reassure  them. 
"Just  wait,"  he  said.  Arakawa  would  pat  them  on  the  back  and 
cajole  them:  "It  will  be  worthwhile.  It  will  be  .  .  ."  They  finished 
his  sentence  without  enthusiasm — "really  big.  We  know." 

It  was  an  uphill  climb.  Even  with  the  guarantees,  fancy  in-store 
displays,  and  the  promise  of  a  $5  million  advertising  campaign,  it 
took  three  sales  calls  to  win  over  most  stores.  A  buyer  would  finally 


ENTER    THE    DRAGON  1  B  "7 


be  convinced,  but  then  a  merchandising  manager  would  say  a  flat 
"No  way."  When  he  was  convinced,  a  vice-president  would  say  no. 
But  the  Nintendo  team  was  persistent,  and  more  stores  agreed. 

The  advertising  campaign  and  press  relations  were  run  by  Gail 
Tilden,  under  the  supervision  of  Ron  Judy.  Tilden  had  come  on  in 
1983.  She  was  a  brunette  with  long  hair,  bangs  down  to  her  eye- 
brows, and  gray-blue  eyes.  She  was  a  combination  of  Annie  Hall 
looks  and  self-confidence;  she  looked  down,  stumbled  over  words, 
and  charmed  almost  everyone  she  met. 

After  a  year  at  Britannia  Sportswear,  Tilden  worked  for  a  small 
Seattle  advertising  agency.  When  a  former  boss  of  hers  left  Nin- 
tendo to  have  a  baby,  she  recommended  Gail  to  replace  her. 
Within  a  year  she  was  Nintendo's  ad  manager.  With  input  from 
Judy  and  Lowry,  she  hired  an  ad  agency  in  early  August  1985. 

Although  the  Nintendo  executives  didn't  know  much  about  ad- 
vertising a  video-game  system,  they  had  learned  from  the  com- 
pany's botched  effort  to  make  commercials  for  Game  &  Watch  to 
trust  professionals:  no  employees  were  in  ads. 

Tilden  instructed  the  agency  in  the  rules  of  NES  advertising,  all 
designed  to  disassociate  Nintendo  from  Atari.  No-no's  included 
the  use  of  the  term  video  game;  this  was  an  entertainment  system. 
Software  was  never  to  be  described  as  game  cartridges,  another 
word  associated  with  Atari.  At  Nintendo  they  were  game  packs. 
The  NES  itself  wasn't  a  console  but  a  control  deck. 

The  ads  the  agency  came  up  with  emphasized  the  variety  of 
games  and  featured  ROB  and  the  Zapper.  It  wasn't  easy  to  adver- 
tise video  games  on  television,  because  watching  kids  play  the 
games  was  about  as  exciting  as  watching  someone  read.  The  excite- 
ment was  internal.  They  came  up  with  ads  that  tried  to  convey  the 
feeling  of  video  games:  energy,  color,  danger,  irreverence.  In  the 
commercials,  houses  blasted  off  into  space  and  kids  explored  a 
spaceship  where  the  control  panels  were  game  screens.  The  voice- 
over  asked:  "Will  it  be  you?  Will  your  family  be  the  first  to  witness 
the  birth  of  the  incredible  new  Nintendo  Entertainment  System?" 
A  light  of  the  sort  in  Close  Encounters  of  the  Third  Kind  showed. 
"Now,"  the  announcer  exulted,  "you're  playing  with  power." 

As  promised,  Arakawa  began  to  blitz  the  New  York  area  with 
television  advertising.  Meanwhile,  Tilden  met  with  members  of  the 


1  BB  GAME    OVER 


trade  press,  the  reporters  who  covered  the  toy  and  consumer- 
electronics  businesses.  They  were  skeptical,  even  as  they  acknowl- 
edged that  Nintendo's  product  had  better  graphics  and  games  than 
the  systems  of  the  past;  they  simply  didn't  believe  the  company 
would  be  able  to  reignite  consumer  interest.  Tilden  tried  to  con- 
vince them  that  video  games  were  an  entertainment  category,  just 
like  VCRs  and  stereos,  but  the  reporters  shook  their  heads;  they 
had  heard  it  all  before.  She  explained  the  quality-control  measures 
Nintendo  had  taken  in  order  to  prevent  the  market  from  becoming 
saturated  with  bad  games  that  had  plagued  the  industry  in  the  past, 
but  the  journalists  had  stopped  listening. 

A  second  hurricane  that  swept  through  Hackensack  one  morn- 
ing was  a  fitting  metaphor.  Through  the  warehouse  door,  the  ex- 
hausted Nintendo  staff  watched  the  rain  falling  horizontally,  from 
left  to  right.  It  became  sunny  for  a  while  as  the  eye  of  the  storm 
went  over  them.  Then  the  rain  poured  down  again,  this  time  from 
right  to  left.  Don  James  took  photos. 

Still,  the  extraordinary  efforts  began  to  pay  off.  A  growing  list  of 
stores  placed  orders.  But  there  was  no  time  for  the  Nintendo  staff- 
ers to  congratulate  themselves;  success  meant  more  work.  Phillips, 
who  managed  the  warehouse,  received  containers  filled  with  sys- 
tems from  Japan  and  shipped  them  out  to  retailers.  James  had  a 
team  building  window  displays  he  designed  for  stores  that  had 
agreed  to  feature  the  NES  for  the  holiday  season.  Everyone  helped 
build  them.  One  night,  Arakawa  and  Lincoln  raced  Don  James  and 
Howard  Phillips  to  see  whose  team  could  build  more  displays. 

There  was  never  a  respite  from  the  pressure,  although  there 
were  some  gratifying  moments.  When  Howard  Lincoln  walked 
across  Fifty-ninth  Street  in  Manhattan  and  reached  the  FAO 
Schwartz  store,  he  was  stopped  in  his  tracks  when  he  saw  the 
window  display  he  and  a  few  others  had  spent  the  previous  night 
assembling.  Midtown  was  crazy  with  holiday  shoppers,  and  Lincoln 
got  so  excited  he  called  Hackensack  and  insisted  that  the  staff  join 
him.  Soon  the  members  of  the  SWAT  team  were  crowded  to- 
gether, standing  in  front  of  the  toy  store,  staring  at  their  window  as 
if  it  were  a  barn  they  had  just  raised. 

Howard  Phillips,  on  the  other  hand,  had  a  rather  unexhilarating 
experience  late  one  night  while  setting  up  a  display  at  a  Toys  "R" 


ENTER    THE    DRAGON  169 

Us  in  New  Jersey.  A  security  guard  on  the  graveyard  shift  came 
over  and  struck  up  a  conversation.  When  he  saw  the  video-game 
system,  he  asked,  "Are  you  from  Atari?" 

Phillips  explained  that  he  was  from  Nintendo  with  a  new  and 
better  system. 

The  guard  said,  "You're  working  for  the  Japs?  I  hope  you  fall 
flat  on  your  ass." 

They  worked  until  the  day  before  Christmas.  Between  500  and 
600  stores  were  selling  the  NES.  The  team  members  were  spent.  A 
group  of  them  summoned  the  energy  to  drag  themselves  to  New- 
ark Airport  to  fly  back  to  Seattle  to  spend  Christmas  with  their 
families,  but  their  flight  was  canceled  because  Seattle  was  fogged 
in.  Most  of  the  SWAT  team  spent  a  lonely  Christmas  in  New 
Jersey. 

The  advertising  and  mall  tours  succeeded  in  building  interest  in 
the  NES,  and  stores  were  racking  up  sales.  The  New  York  test 
wasn't  quite  as  successful  as  Nintendo  had  hoped,  but  half  of  the 
100,000  systems  shipped  from  Japan  were  sold.  Most  important, 
retailers  had  decided  that  Nintendo  had  a  viable  product.  It  was 
enough  to  justify  going  forward. 

Los  Angeles  was  next.  It  was  a  tougher  sell  there  because  of  the 
time  of  the  year.  They  hit  stores  in  L.A.  in  February,  a  bad  month 
for  retailers,  particularly  for  toys.  Still,  enough  systems  were  sold 
to  encourage  Arakawa.  The  L.A.  sales  were  slow  but  steady,  and 
retailers  were  enthusiastic  for  the  most  part.  The  team  continued 
— to  Chicago,  San  Francisco,  and  several  Texas  cities  before  going 
national.  By  the  end  of  the  first  year,  a  million  systems  had  been 
sold  in  America. 

It  was  still  slow  going.  Stores  remained  reluctant  to  commit 
much  to  video  games,  and  most  people  in  the  industry  assumed 
that  Nintendo's  limited  success  was  a  temporary  aberration.  In  the 
second  year,  however,  the  company  sold  another  3  million  systems. 

When  Arakawa  had  ventured  into  the  food  business  with  Chuck 
E.  Cheese  and  the  other  restaurants,  he  got  advice  from  Peter 
Main,  his  old  friend  from  Vancouver,  who  had  a  wealth  of  experi- 
ence in  marketing  and  restaurant  management.  Nintendo's  restau- 
rants were  making  a  profit,  and  Arakawa  tried  to  convince  Main  to 


1  70  GAME    OVER 

resign  from  his  vice-presidency  at  General  Foods  and  join  Nin- 
tendo. He  wanted  Main  to  oversee  the  restaurants  and  help 
orchestrate  what  Main  would  later  call  Nintendo's  "Invasion  of 
Normandy,"  the  NES  launch. 

Main,  balding  but  with  a  trace  of  thinning  gold  hair  on  the  sides 
of  his  head,  wore  big  round  glasses  with  thick  root-beer-colored 
frames.  Behind  the  glasses  were  dark  eyes,  jovial  and  frank.  He 
worked  in  an  office  strewn  with  baseballs,  a  Hula-Hoop,  and  an 
electric  train  set. 

A  Canadian,  Main  had  worked  for  years  for  Colgate-Palmolive. 
He  headed  their  new-products  group  in  Canada.  He  had  spent 
years  coming  up  with  ways  to  convince  people  to  buy  Colgate 
toothpaste  and  various  other  products.  In  those  businesses,  a  frac- 
tion of  market  share  meant  millions  of  dollars.  "You  had  to  be  a 
street  fighter,"  Main  says.  "You  had  to  beat  them  on  the  curbs." 

Main  moved  on  to  General  Foods  in  Canada  and  managed  its 
restaurants,  including  Kentucky  Fried  Chickens,  steak  houses, 
Burger  Chefs,  and  White  Spots.  He  also  went  into  business  for 
himself  before  returning  to  General  Foods  at  about  the  time  "this 
neat  young  Japanese  couple"  bought  the  house  across  the  street. 
"It  looked  different  from  the  other  houses,"  Main  says.  "The  shoes 
were  outside  the  front  door."  Soon  he  got  to  know  the  Arakawas — 
"very,  very  warm  people,  even  though  their  verbal  skills  were  not 
considerable  at  the  time." 

In  1980,  Arakawa  told  the  Mains  that  he  was  quitting  his  job  and 
going  to  work  for  his  father-in-law  in  America  to  set  up  in  New 
Jersey  something  called  Nintendo  of  America.  Main  thought  it  was 
a  pinball  factory. 

The  Mains  heard  from  the  Arakawas  through  notes  and  Christ- 
mas cards  and  saw  Minoru  when  he  dropped  by  to  check  in  on  the 
property  he  still  owned.  Main  later  heard  from  Arakawa  when  he 
and  Yoko  had  moved  to  Seattle  after  Nintendo  returned  West.  In 
early  1982  Main  helped  Arakawa  get  into  the  restaurant  business. 
Five  years  later,  when  Nintendo  was  completing  its  market  tests  for 
the  NES,  Arakawa  asked  Main  to  come  work  at  Nintendo.  Ron 
Judy  had  been  in  charge  of  marketing,  but  he  was  going  off  to 
Europe  to  promote  the  NES  there. 

Main  knew  nothing  about  the  video-game  business,  so  he  stud- 


ENTER    THE    DRAGON  171 

ied  all  the  documentation  he  could  find  about  the  Atari  crash. 
"Nintendo,"  he  concluded,  "had  a  better  mousetrap  and  a  commit- 
ment to  do  this  thing  right."  He  came  on  as  vice-president  of 
marketing,  with  responsibilities  that  included  advertising,  promo- 
tion, distribution,  and  merchandising. 

Main  first  sought  to  improve  Nintendo's  relationship  with  the 
retail  community.  He  also  began  an  assault  on  Wall  Street,  meeting 
key  analysts  who  follow  the  toy  and  electronics  businesses.  With 
the  success  of  the  tests  behind  them,  sales  could  have  been  ex- 
pected to  at  least  slog  along,  but  there  was  no  guarantee  of  bigger 
numbers  or  market  longevity.  Large  discount  chains  and  depart- 
ment stores  were  still  not  convinced.  Space  in  their  stores  was  at  a 
premium;  to  minimize  risk,  they  put  Nintendo  in  only  a  few  stores 
and  carried  just  a  handful  of  games.  The  toy  stores  were  coming 
aboard,  but  the  retailing  base  was  still  tenuous. 

A  forceful  salesman,  Main  met  with  analysts  and  gave  them  "a 
hot  tip."  Analysts  were  always  on  the  lookout  for  the  next  big 
thing.  They  were  also  looking  for  companies  with  strong  balance 
sheets  that  might  employ  their  organizations  when  it  came  time  to 
offer  stock.  Nothing  was  known  about  Nintendo  when  Main  sat 
down  with  these  people,  one  at  a  time,  to  pitch  them.  He  presented 
them  with  background  on  NCL,  its  history,  and  its  financial  status 
— a  balance  sheet  with  no  debt.  This  caught  their  attention,  and  so 
did  the  numbers:  Nintendo  had  a  lock  on  90  percent  of  the  thriving 
industry  in  Japan. 

The  analysts  checked  with  their  counterparts  in  Tokyo,  and  after 
corroborating  the  information,  talked  to  retailers.  Having  the  top 
analysts  asking  about  Nintendo  gave  the  company  a  credibility  it 
had  never  had  in  the  United  States.  When  analysts  heard  that 
other  analysts  were  talking  about  Nintendo,  it  confirmed  that  they 
were  on  to  something.  It  was  a  chain  reaction.  When  buyers  at 
Circuit  City,  Babbages,  or  the  other  electronics  retailers  told  ana- 
lysts that  they  weren't  carrying  Nintendo — that  the  electronic- 
game  business  was  not  in  video  games  but  in  computer  software — 
they  heard  back,  "Are  you  crazy?  These  guys  are  already  selling 
more  of  one  title  than  you  sell  of  all  computer-game  titles  put 
together!"  The  buyers  checked  with  other  analysts  and  asked 
about  the  company.  When  Main  went  to  Sears,  a  vice-president 


1  "72  GAME    OVER 


told  him,  "Funny  you  should  mention  Nintendo.  I  was  just  at  an 
investment-analysis  meeting  and  there  were  people  asking  me 
what  we  were  doing  about  Nintendo."  Sears  was  one  of  the 
toughest  sells  since  it  had  been  burned  more  than  other  companies 
by  a  huge  investment  in  Atari. 

The  sleight-of-hand  worked.  Sears  signed  up,  and  Circuit  City 
and  Babbages  (with  its  two  hundred  software  stores)  did  too.  Wall 
Street  was  inundated  with  stories  about  Nintendo.  Kmart  and  Wal- 
Mart,  conservative  and  cautious,  expanded  their  commitment.  To 
compete,  the  toy  companies  began  buying  more  Nintendo  prod- 
ucts. "It  became  a  self-fulfilling  prophecy  that  something  would 
happen,"  Main  says. 

In  1988,  7  million  more  NES  units  were  sold,  along  with  33 
million  game  cartridges.  Two  Nintendo  games — "The  Legend  of 
Zelda"  and  "Mike  Tyson's  Punch-Out!" — sold  2  million  apiece  just 
as  "Super  Mario  Bros.  2"  was  released  (the  original  "Super  Mario 
Bros."  was  included  with  the  NES). 

By  1989,  there  would  be  an  NES  unit  in  one  out  of  every  four 
American  homes.  By  1990,  one  third  of  American  homes  would 
have  one — more  than  30  million  of  them.  By  1992,  the  video-game 
industry  would  be  thriving  again — it  passed  $5  billion  in  retail  sales 
that  year — and,  for  all  practical  purposes,  it  had  all  been  Nin- 
tendo's doing. 

If  Nintendo  had  been  an  American  company  playing  by  the  rules 
such  companies  follow,  it  would  have  given  up  long  before  there 
was  any  indication  of  success — that  is,  after  Arakawa's  original 
market  surveys,  when  the  AVS  failed,  or  when  there  was  resistance 
at  the  first  trade  shows.  Many  American  companies  are  so  wedded 
to  market  research  that  the  devastating  results  of  focus  groups 
have  signaled  death  knells.  Had  Nintendo  been  American,  the 
company  would  probably  have  retreated  when  retailers  in  New 
York  declined  to  place  orders,  or  when  it  took  more  than  a  year  for 
big  sales  numbers  to  appear.  But  commitment  to  an  idea  and  pure 
tenacity  are  inherent  in  Japanese  business  philosophy — and  cer- 
tainly to  Japanese  business  successes. 

Arakawa's  perseverance  was  vital — "I  learned  to  set  a  goal  and 


ENTER   THE    DRAGON  173 

to  do  what  is  necessary  to  reach  it"— but  even  more  important  was 
Yamauchi's  commitment  to  back  him.  The  money  poured  forth — 
more  than  the  original  $50  million  Yamauchi  had  committed.  He 
could  afford  to  spend  vast  sums  on  the  new  product  even  if  it 
meant  fiscal  quarter  after  fiscal  quarter  of  weak  profits  or  even 
losses.  A  CEO  of  a  public  company  in  America  with  stockholders 
to  answer  to  four  times  a  year  would  probably  have  withdrawn. 
Quarterly  profit-and-loss  statements  do  not  tell  the  long-term  story 
of  a  company,  however.  Heads  of  Japanese  companies  answer  to 
investors,  but  they  are  not  under  pressure  to  deliver  high  dividends 
or  dramatic  short-term  growth.  The  structure  allows  company 
heads  to  work  toward  long-term  growth;  they  are  not  forced  to 
abandon  a  strategy  today  because  it  didn't  pay  off  yesterday. 

Nintendo's  success  was  proof  of  the  superiority  of  a  system  that 
allows  long-term  commitment.  This  feature  of  Japanese  business 
was  one  reason  why  Japanese  companies  ended  up  with  almost  100 
percent  of  the  video-game  hardware  business,  just  as  they  had 
most  of  the  television  and  VCR  business  and  were  on  their  way  to 
having  most  of  the  business  in  products  from  flat-screen  displays  to 
certain  high-capacity  memory  chips — all  of  them  technologies  pio- 
neered in  America. 

As  Arakawa  succeeded  in  his  conquest  of  the  American  market, 
he  would  be  attacked  by  competitors  and  American  politicians. 
Nintendo  prevailed,  they  would  charge,  because  of  illegal  prac- 
tices, from  price  fixing  to  un-American  monopolistic  control  to 
intimidation  of  retailers.  But  the  companies  (and  the  economy) 
that  suffered  because  of  Nintendo's  success  would  have  been  bet- 
ter served  if  they  had  struck  out  against  the  American  system 
which  allowed  Nintendo  to  stroll  into  a  market  that  had  been  all 
but  destroyed. 

Still,  Japan-bashers  were  correct  in  one  sense.  If  the  playing 
fields  in  Japan  and  America  had  been  equal,  Nintendo  might  never 
have  destroyed  the  American  competition.  Even  in  its  heyday, 
Atari  never  had  much  success  in  the  Japanese  consumer  market. 
The  Atari  2600  sold  for  about  $120  in  America,  but  by  the  time  it 
reached  Japanese  consumers,  after  traveling  through  the  trade 
barriers  of  middlemen  and  the  many-tiered  distribution  system,  it 
cost  the  equivalent  of  $380.  At  that  price,  few  sold.  Other  Ameri- 


GAME    OVER 


can  companies  wrote  Japan  off,  settling  for  small  profits  by  licens- 
ing video-game  systems  to  Japanese  companies.  Magnavox,  for 
one,  sold  the  rights  to  its  Odyssey  system  to  Nintendo.  On  the 
other  hand,  if  the  2600  had  been  priced  competitively  in  Japan, 
Atari  might  have  become  the  standard  there,  as  it  had  in  America. 
Nintendo  might  not  have  been  able  to  undersell  Atari  by  so  much, 
and  so  might  never  have  tried  to  compete.  The  Famicom  and  NES 
might  never  have  been  developed. 

After  the  Atari  crash  in  America,  almost  nothing  happened  in 
the  home  video-game  industry  until  Minoru  Arakawa  came  along. 
Atari  was  in  such  bad  shape  (and  had  such  a  bad  name)  that  its 
follow-ups  to  the  2600  sold  a  trivial  number,  and  there  remained 
no  other  American  competition  to  speak  of.  The  personal- 
computer  companies  could  have  come  in  at  this  point,  but  they 
weren't  interested  in  that  market.  As  a  result  of  this  miscalcula- 
tion, Nintendo  was  soon  making  more  money  than  Apple. 

Arakawa  also  endured  because  he  didn't  care  what  anyone 
thought.  Analysts  rolled  their  eyes,  but  he  refused  to  be  dependent 
on  the  American  industry's  narrow  view  of  the  market.  He  kept 
slugging  away  because  he  believed,  correctly,  that  kids  in  America 
were  very  much  like  kids  in  Japan.  There  were  minor  differences — 
gun  games  were  popular  in  the  United  States,  but  not  in  Japan, 
while  role-playing  games  did  better  in  Japan — but  the  kids  were 
similar  enough  to  form  a  market  that  would  buy  more  than  75 
million  Nintendo  systems  in  the  two  countries  by  1992. 

The  grumbling  heard  throughout  the  American  industry  could 
not  diminish  the  fact  that  Nintendo  did  certain  things  better  than 
companies  in  any  industry.  The  company's  products  were  good  and 
the  backing  from  its  Japanese  parent  company  was  crucial,  but 
Nintendo  still  would  never  have  gained  its  enormous  sales  without 
phenomenal  marketing — "the  kind  that  America  had  never  seen 
before,"  according  to  a  competitor. 

Peter  Main  and  Arakawa  led  a  multiphased  assault  that  was 
meticulously  planned  and  flawlessly  carried  out.  Nothing  was  left 
to  chance.  Through  the  late  1980s,  the  company  launched  ad  cam- 
paigns and  the  first  organized  merchandising  program  with  inter- 
active displays  in  stores  throughout  the  United  States.  Anyone 
passing  by  a  Nintendo  display  could  stop  and  try  it.  TV  commer- 


ENTER    THE    DRAGON 


cials  had  piqued  kids'  curiosity,  and  soon  anyone  shopping  with 
their  children  was  dragged  to  Nintendo  displays  in  stores.  Once 
kids  tried  "Super  Mario,"  Nintendo  was  put  on  Christmas  lists. 
Peter  Main  wanted  an  even  greater  in-store  presence.  To  get  it  he 
decided  to  bring  in  a  professional  merchandiser,  John  Sakaley, 
who  knew  the  toy  business  inside  out. 

Sakaley  had  begun  his  career  as  a  carpet  buyer,  then  changed  to 
become  a  toy  buyer.  He  ended  up  working  for  Kenner,  under 
Bernie  Loomis,  the  company's  well-known  and  respected  presi- 
dent. Under  Loomis,  Sakaley  formed  Kenner's  first  merchandising 
department  and  introduced  a  series  of  innovations,  including  an 
approach  begun  by  Mattel:  stores  within  stores  devoted  to  a  single 
product  (there  was  a  Star  Wars  store  in  toy  departments,  with 
action  figures,  space  vehicles,  posters,  and  the  like). 

Eventually  Sakaley  left  Kenner  to  become  the  group  director  of 
the  retail  sales  force  for  the  toy  division  at  General  Mills.  Then 
Bruce  Donaldson,  the  vice-president  of  sales  for  NOA,  hired  him. 

When  Sakaley  was  hired,  he  focused  on  developing  a  merchan- 
dising force  that  headed  into  the  trenches  and  called  on  stores  to 
make  certain  that  the  NES  was  prominently  displayed.  Eventually 
Toys  "R"  Us  would  feature  full  rows  of  Nintendo  merchandise, 
and  Macy's  would  incorporate  NOA's  ambitious  store- 
within-a-store,  The  World  of  Nintendo. 

To  get  stores  to  invest  in  huge  Nintendo  displays,  Sakaley  initi- 
ated the  "merchandise-accrual  fund."  For  each  piece  of  Nintendo 
hardware  or  software  purchased,  the  retailer  was  credited  with  a 
specific  amount  in  a  fund — a  quarter  for  an  NES  system,  a  dime 
for  a  game — that  was  used  to  purchase  displays  Sakaley's  staff 
created.  Retailers'  credits  toward  their  merchandising-accrual 
funds  doubled  when  they  agreed  to  have  a  World  of  Nintendo.  Of 
course  this  benefited  Nintendo  at  least  as  much  as  the  stores. 

Eventually,  10,000  retail  outlets  had  Worlds  of  Nintendo,  where 
they  showcased  a  growing  cornucopia  of  products,  all  of  which 
carried  the  Nintendo  Seal  of  Quality,  an  idea  Ron  Judy  had  come 
up  with. 

Nintendo  displays  were  elaborate.  At  some  locations,  laser-light 
beams  shot  through  the  air.  Silver-metallic  and  fluorescent-yellow 
pipes  and  tubes  snaked  over  and  around  girders.  It  was  as  if  you 


17B  GAME    OVER 


were  inside  a  Nintendo  game.  The  displays  won  awards  from  the 
Point  of  Purchase  Advertising  Institute  (POPAI)  several  years  in  a 
row. 

This  mammoth  effort  resulted  in  strong  NES  sales,  but  Arakawa 
saw  that  they  were  still  held  back  by  an  inadequate  distribution 
system.  Some  chains  had  signed  on  but  still  ordered  cautiously. 
Others  remained  unconvinced.  To  get  the  holdouts,  it  seemed  ben- 
eficial to  hook  up  with  a  distribution  network  that  already  had  a 
presence  inside  the  stores. 

Don  Kingsborough  was  a  legend  in  the  toy  business.  He  had 
been  with  Atari  before  founding  Worlds  of  Wonder  (WOW)  to  sell 
Teddy  Ruxpin,  a  mechanical  bear  that  told  stories.  Teddy's  mouth 
moved  when  prerecorded  tapes  played  on  his  built-in  cassette 
player. 

Teddy  Ruxpin  was  the  most  popular  toy  around  for  a  couple  of 
Christmases;  retailers  wanted  all  they  could  get.  To  service  them, 
Kingsborough  developed  a  large,  efficient  distribution  network. 

Arakawa  met  with  Kingsborough  and  made  a  deal  that  benefited 
both  Worlds  of  Wonder  and  Nintendo.  Joining  forces  with  Kings- 
borough's  group  gave  Nintendo  immediate  marketplace  muscle. 
Teddy  Ruxpin  had  brought  in  $93  million  in  revenues  in  1985,  its 
first  year,  and  more  than  $300  million  by  the  end  of  the  next  year. 
Overnight  WOW  was  worth  $550  million.  By  convincing  Kingsbor- 
ough to  distribute  Nintendo  beginning  in  late  1986,  Arakawa  got 
presence  and  credibility.  WOW  had  relationships  with  most  toy, 
department,  and  discount  stores.  For  its  part,  the  Worlds  of  Won- 
der network  gained  a  large  new  business  servicing  the  Nintendo 
account.  Revenues  from  the  deal  helped  Kingsborough  to  expand. 

Although  the  WOW  operation  did  increase  Nintendo's  presence 
in  the  retailing  world,  Sakaley  came  to  feel  that  Nintendo  still 
wasn't  getting  enough  "bang  for  the  buck."  He  felt  Nintendo  could 
do  a  better  job  with  reps  committed  solely  to  Nintendo,  not  to 
Teddy  Ruxpin  as  well. 

Sakaley  discussed  this  with  Arakawa,  who  gave  him  the  go- 
ahead  to  start  his  own  merchandising  force.  Sakaley  had  already 
started  to  organize  it  when,  in  the  fall  of  1987,  Worlds  of  Wonder 
began  to  fall  apart.  The  Teddy  Ruxpin  fad  had  run  its  course,  and 


ENTER    TH  E    DRAGON  177 


the  company's  costs  were  out  of  control.  WOW  had  an  assumed 
debt  of  $200  million  and  a  tremendous  inventory.  "Worlds  of  Won- 
der has  been  in  a  world  all  its  own,"  a  toy-industry  analyst  said. 
Although  a  private  investment  group  took  over  the  company,  Nin- 
tendo was  told  on  a  Friday  in  October  that  WOW  would  not  be 
able  to  continue  with  its  field-merchandising  service. 

Arakawa  convinced  Kingsborough  not  to  lay  off  his  field  repre- 
sentatives for  seventy-two  hours.  During  that  time  he  had  Sakaley 
explore  Nintendo's  options.  Sakaley  and  an  assistant  worked 
through  the  weekend,  and  on  Sunday  night  he  called  Peter  Main. 
In  the  morning,  when  the  two  men  sat  down  with  Arakawa, 
Sakaley  told  him  that  Nintendo  should  take  over  the  WOW  orga- 
nization. After  a  call  to  Kingsborough,  Arakawa  had  Sakaley  hire 
the  WOW  reps  as  they  were  fired  from  WOW. 

Sakaley  had  an  instant  force  of  100  people  and  he  hired  fifty 
more.  The  new  force  carried  cameras  and  photographed  the  Nin- 
tendo displays.  Sakaley  was  able  to  send  someone  out  almost  im- 
mediately if  a  major  store  wasn't  doing  its  part.  The  reps  were  also 
equipped  with  Panasonic  hand-held  computers  with  telephone 
modems  that  could  relay  sales  information  back  to  the  main  office. 
"Back  in  the  Colgate  days,  it  used  to  take  two  months  to  get  a 
report  after  the  fact  to  find  out  the  mistakes  you  made— which  you 
were  compounding  and  which  were  leading  you  down  the  wrong 
road,"  Main  says.  "We  were  getting  it  daily." 

Japanese  companies  in  the  automobile  industry  used  efficient 
just-in-time  inventory  management  systems.  Essentially  this  meant 
that  companies  bought  parts  they  needed  only  when  they  needed 
them.  The  merchandising  feedback  loop  allowed  Nintendo  to  insti- 
gate a  kind  of  just-in-time  inventory  policy  so  that  it  ordered  only 
what  it  needed  as  it  needed  it  from  NCL.  Likewise,  NCL  could 
thus  avoid  over-  or  underproduction.  Neither  NCL  nor  NOA  had 
to  tie  up  money  in  inventory. 

Main's  and  Arakawa's  web  sought  not  only  to  ensnare  customers 
but  to  keep  them.  Nintendo  encouraged  customers  to  send  in  war- 
ranty cards  with  contests  to  win  game  cartridges.  U.S.  contest  laws 
soon  made  it  too  complicated,  so  a  new  incentive  was  developed: 


178  GAME    OVER 


anyone  who  sent  in  a  warranty  card  became  a  member  of  the  Fun 
Club,  whose  members  got  a  four-,  eight-  and  eventually  a  thirty- 
two-page  newsletter.  Seven  hundred  copies  of  the  first  issue  were 
sent  out  free  of  charge,  but  the  number  grew  as  the  data  bank  of 
names  got  longer. 

From  the  success  of  the  magazines  in  Japan,  Nintendo  knew  that 
game  tips  were  an  incredibly  valuable  asset.  The  bimonthly  news- 
letter's crossword  puzzles  and  jokes  were  fine,  but  game  secrets 
were  the  most  valued.  The  Fun  Club  drew  kids  in  by  offering  tips 
for  the  more  complicated  games,  especially  "The  Legend  of 
Zelda,"  which  had  all  kinds  of  hidden  rooms,  secret  keys,  and 
passageways.  In  the  newsletter  a  secret  code  was  revealed  that  led 
players  of  "Mike  Tyson's  Punch-Out!"  to  the  last  level— a  bout 
with  the  champ.  Without  the  code,  it  was  extremely  difficult  to 
reach  Tyson. 

The  Nintendo  frenzy  had  now  begun  in  earnest.  Kids  were  com- 
peting with  one  another  to  finish  games.  When  Nintendo's  Red- 
mond switchboard  received  telephone  calls  from  players  who 
wanted  tips,  they  too  were  enrolled  in  the  Fun  Club. 

The  mailing  list  grew.  By  early  1988,  there  were  over  1  million 
Fun  Club  members,  and  this  led  to  Arakawa's  decision  to  start 
Nintendo  Power  magazine.  In  Japan,  Nintendo  had  allowed  other 
companies  to  make  fortunes  from  magazines  devoted  to  the 
Famicom.  In  America,  with  its  long  list  of  potential  subscribers, 
Nintendo  would  keep  the  money  and  the  control  itself. 

Unilaterally  Arakawa  decided  that  the  magazine  would  take  no 
advertising.  His  colleagues  told  him  he  was  crazy — he  was  turning 
his  back  on  a  potential  gold  mine.  With  that  subscription  base, 
Nintendo  licensees  and  companies  with  products  geared  for  kids 
would  have  paid  top  dollar. 

Arakawa,  however,  was  emphatic,  insisting  that  the  magazine 
would  be  purely  editorial.  Companies  would  not  be  able  to  adver- 
tise bad  games,  as  they  had  in  the  Fun  Club.  Of  course  the  "edito- 
rial" content  of  Nintendo  Power  was  really  one  long  Nintendo 
advertisement— stories  about  game  characters,  lists  of  kids'  high 
scores,  and  loads  of  maps  and  charts,  as  well  as  lots  of  game  tips. 

The  company  brought  in  a  firm  specializing  in  direct-response 


ENTER   THE    DRAGON  179 


research  to  decide  how  to  market  the  magazine,  but  after  paying 
for  a  survey  and  a  lengthy  computer  printout  of  advice,  Arakawa 
threw  the  data  away.  "All  the  kids  really  have  to  do  is  feel  the 
magazine,  look  at  it,  touch  it,  and  understand  it,"  he  said,  "so  what 
I  want  to  do  is  mail  the  magazine  free  to  the  people  whose  names 
we  have.  Then  they  will  buy  it."  When  he  was  told  that  this  would 
cost  $10  million,  he  was  undeterred. 

Gail  Tilden  had  recently  left  the  company  to  have  a  baby,  but 
Arakawa  wanted  her  back  to  run  the  magazine.  Yoko  said,  "There 
was  so  much  male  power  there  that  he  needed  Gail  to  diffuse  it." 
Arakawa,  who  found  Tilden  talented,  perceptive,  and  dedicated, 
called  and  convinced  her  to  come  back  to  work,  although  her  baby 
was  just  a  few  weeks  old.  She  prepared  the  first  issue  in  January 
1989,  and  it  was  sent  out  to  all  5  million  names  on  the  data  base. 
There  was  something  bordering  on  the  insidious  about  Nintendo 
Power.  Kids  paid  $15  for  twelve  monthly  issues,  which  covered 
most  of  the  costs  of  the  magazine.  The  other  costs,  including  mail- 
ing charges,  were  paid  through  the  marketing  budget.  From  the 
original  mailing,  1.5  million  people  sent  in  $15  to  subscribe.  It  was 
an  audience  that  experts  in  the  magazine  business  had  almost  writ- 
ten off:  they  didn't  read  and  they  had  a  million  better  things  to  do 
with  $15.  Nonetheless,  Nintendo  Power  became  the  largest-circula- 
tion magazine  for  kids  in  America  by  the  end  of  its  first  year. 

Power  had  what  Peter  Main  called  an  "ability  to  pre-sell  prod- 
uct." It  was  as  if  Universal  Studios  owned  Premiere  magazine  and 
other  print  media  devoted  to  movies.  Universal  could  then  decide, 
well  in  advance,  to  trumpet  a  particular  coming  movie,  building 
anticipation.  As  the  movie  neared  completion,  it  could  make 
grander  and  grander  announcements.  Just  as  the  film  was  to  hit  the 
theaters,  it  could  announce  that  it  was  the  most  incredible  movie 
ever  made,  and  that  anyone  who  didn't  see  it  immediately  was 
missing  the  event  of  the  season.  The  publications  would  then  tell 
readers  how  much  everyone  loved  the  movie  and  push  any  hold- 
outs to  see  it,  all  the  while  creating  enthusiasm  for  the  next  Univer- 
sal movie. 

Power  meant  that  Nintendo  didn't  have  to  waste  money  develop- 
ing hundreds  of  games.  It  could  develop  a  select  few  each  year  and 


1BD  GAME    OVER 


be  all  but  guaranteed  that  the  games  would  sell  at  least  a  set 
minimum  amount.  Any  advertising  beyond  the  magazine  was 
gravy,  since  Power  guaranteed  that  Nintendo  was  in  touch  with 
millions  of  its  most  dedicated  customers,  enough  people  to  create 
word-of-mouth  demand  for  a  game. 

Editor  Tilden  assembled  materials  for  each  issue  with  the  help 
of  Howard  Phillips,  the  most  enthusiastic  in-house  player,  a  con- 
tributing editor,  and  a  character  in  a  regular  comic  strip.  Planning 
a  new  issue,  the  two  went  through  games  that  were  coming  out  to 
determine  how  much  and  what  kind  of  coverage  they  merited. 
There  was  no  pretense  of  editorial  independence;  Arakawa,  Main, 
and  Lincoln  approved  the  selections.  The  best  games  (or  the  ones 
Nintendo  wanted  most  to  sell)  were  covered  in  spread  after  glossy 
spread  of  maps,  galleries  of  characters,  and  player  tips. 

"People  sometimes  just  take  kids  for  granted  or  act  like  they're 
really  dumb,"  Tilden  says.  Nintendo  did  its  best  to  speak  to  kids  as 
peers.  The  voice  they  devised  was  perfect.  The  prose  was  a  cross 
between  the  dialogue  in  Wayne's  World  and  a  Pee-wee  Herman 
routine.  Nintendo  Power,  in  1990,  was  scripture  for  up  to  6  million 
readers  a  month.  "Parents  who  complain  that  their  kids  don't  read 
should  pay  attention— kids  pore  over  every  word  of  Nintendo 
Power"  according  to  Howard  Phillips. 

Tilden  worked  with  a  Japanese  publishing  company  that  de- 
signed and  printed  the  magazine.  Editors  from  Japan  came  to 
Seattle  to  discuss  each  issue.  Thereafter  the  design  teams  put  to- 
gether game  maps  and  layouts.  Young  writers  hired  by  Tilden, 
many  from  within  the  company,  wrote  enthusiastic  descriptions  of 
the  games  and  provided  tips  that  often  came  directly  from  the 
game  designers. 

The  magazine  published  Polaroid  snapshots  of  the  screens  of 
kids'  televisions  to  prove  their  outrageously  high  game  scores. 
There  were  comics  based  on  games,  and  a  celebrity  corner  where 
kids  learned  that,  for  instance,  Jay  Leno  loved  to  play  "Contra." 

Eventually  twelve  issues  a  year  weren't  enough  to  meet  the  insa- 
tiable need  for  insider  knowledge,  so  additional  quarterly  Nintendo 
Player's  Guide  books — entire  magazines  devoted  to  a  single  game 
—were  released.  Some  were  given  away  as  premiums  to  encourage 


ENTER   THE    DRAGON 


kids  to  renew  their  subscriptions.  "We  have  found  that  more  and 
better  information  whets  players'  appetites  for  more  games  and 
accessories,"  Peter  Main  says.  "Hungry  consumers  make  happy 
retailers." 

There  was  an  unprecedented  number  of  hungry  consumers.  Nin- 
tendomania  was  sweeping  the  United  States.  NOA's  switchboard 
operators  were  deluged  with  calls  from  kids.  They  wanted  more 
information  than  they  could  find  in  Nintendo  Power  magazine, 
things  like  how  to  set  up  their  NES  machines,  so  Peter  Main  came 
up  with  a  way  to  take  advantage  of  the  calls.  "The  phone  system  is 
really  the  closing  of  the  loop  in  a  fashion  that  no  other  consumer 
company  in  this  country  has  been  able  to  do,"  he  says.  Phil  Rogers, 
who  oversees  the  consumer  service  department,  says,  "When  we 
started,  what  did  we  know  about  consumer  service?  Not  a  damn 
thing.  We  knew  about  service  to  distributors  because  we'd  been 
doing  that  for  arcade  games,  but  we'd  never  even  talked  to  a 
consumer."  When  Main  decided  to  set  up  the  phone  lines,  Rogers 
figured  that  they  needed  four  operators.  They  began  with  some  six- 
button  phones  in  January  1986. 

Calls  flooded  in,  so  many  of  them  that  Rogers  bought  a  $40,000 
electronic  call  distributor  in  1987.  Within  a  year  there  were  550 
people  answering  150,000  calls  a  week  on  a  new,  $3  million  phone 
system.  Customers  called  an  800  number  to  reach  consumer  ser- 
vice representatives.  If  a  store  was  out  of  a  highly  sought-after 
game,  service  representatives  could  advise  a  caller  on  its  availabil- 
ity. Representatives  took  the  callers'  zip  codes,  and  by  accessing  a 
data  base,  could  tell  the  callers  where  games  were  available.  Call- 
ers' names  and  addresses  were  added  to  the  mailing  list. 

Many  calls  were  from  kids  asking  how  to  get  past  tricky  villains 
in  games.  Consumer  reps  transferred  the  calls  to  Howard  Phillips 
or  other  game  players  who  worked  for  Don  James.  Some  callers 
spoke  Spanish  and  French,  so  bilingual  representatives  were  hired. 

The  telephone  company  informed  Rogers  that  their  800  number 
was  backed  up  most  of  the  time  because  half  a  million  calls  were 
coming  in  every  week.  Nintendo  decided  to  initiate  a  900  (pay-per- 
call)  number  for  kids  to  reach  the  Captain  Nintendo  Hotline  for 
tips  and  adventure  stories  about  Nintendo  games.  More  important, 


GAME    OVER 


Nintendo  initiated  game  counseling.  Kids  by  the  hundreds  of  thou- 
sands called  a  separate  800  number  with  questions  about  games. 
Counselors  manned  the  phones  from  4:00  a.m.  till  10:00  p.m.— to 
catch  the  early-morning  calls  from  New  York  and  the  late  evening 
calls  from  California — seven  days  a  week.  Hundreds  of  game  coun- 
selors huddled  in  partitioned  work  spaces,  each  equipped  with  a 
Nintendo  system  and  stacks  of  games,  a  computer  terminal,  notes, 
and  "green  bibles,"  bound  volumes  of  game  maps  and  secrets. 

Many  of  the  counselors  were  lured  by  a  "PLAY  GAMES  FOR 
A  LIVING"  ad  in  the  Seattle  Times.  When  they  were  hired,  they 
were  given  an  NES  and  stacks  of  games  to  master.  "It  was  better'n 
Christmas,"  says  Phil  Sandoff,  one  counselor.  He  and  his  col- 
leagues fielded  dozens  of  calls  an  hour,  but  the  phone  system  still 
couldn't  handle  the  load.  Calls  crashed  into  one  another,  and  many 
were  disconnected. 

Some  of  the  callers  had  detailed  questions,  but  others  just 
wanted  to  talk.  "William,  do  you  have  a  question  about  a  game  or 
what?"  Sandoff  finally  asked  a  caller  who  wanted  to  talk  about  the 
problems  he  was  having  in  school.  A  seven-minute  rule  was  initi- 
ated; no  call  could  exceed  that  time  limit.  Counselors  developed 
ways  to  cut  calls  short  when  kids  started  asking  about  their  favorite 
rock  groups  and  movies.  One  caller  sought  marriage  counseling. 
His  wife,  he  said,  was  going  to  leave  him  if  he  didn't  stop  playing 
"The  Legend  of  Zelda."  Sandoff 's  advice  to  him  was,  "Shut  off  the 
game." 

The  phones  were  overloaded,  and  the  800-line  service  became 
so  expensive  that  Nintendo  discontinued  it.  Calls  to  game  counsel- 
ors became  regular  toll  calls  in  1990.  Phil  Rogers  instructed  the 
counselors  not  to  speak  with  any  child  for  more  than  three  minutes 
without  making  certain  that  the  parents  knew  that  they  were  going 
to  be  billed  for  the  call.  After  seven  minutes,  no  matter  what  the 
child  said,  the  counselors  were  told  to  gently  get  off  the  line.  "Par- 
ents were  not  going  to  blame  themselves  for  not  controlling  their 
kids,"  Rogers  said.  "They  were  going  to  blame  us."  Still  the  volume 
didn't  slow  down. 

Blaine  Phelps,  a  counselor  who  became  a  supervisor  in  the  de- 
partment, had  answered  the  same  newspaper  ad  before  joining 
NOA  (he  had  been  living  in  his  car  after  losing  his  last  job).  "We 


ENTER    THE    DRAGON 


don't  just  give  away  secrets,"  he  says.  "We  are  trained  in  the  So- 
cratic  method  of  game  counseling." 

For  years,  the  most  asked  question  was  about  "The  Legend  of 
Zelda."  Callers  couldn't  figure  out  how  to  get  past  Grumble 
Grumble,  a  creature  lurking  on  level  7. 

"What  does  it  mean  when  your  stomach  is  going  'grumble  grum- 
ble'?" Phelps  would  ask. 

"I'm  hungry,"  responds  a  puzzled  boy. 

"Right.  And  how  do  you  make  it  stop?" 

"I  get  something  to  .  .  .  Hey!  That's  it!  Feed  Grumble  Grum- 
ble!" 

The  game  counselors  did  more  than  provide  a  customer  service. 
First,  they  further  bonded  players  to  the  company.  The  degree  to 
which  kids  became  obsessed  with  Nintendo  amazed  educators,  psy- 
chologists, and  parents.  The  magazine  and  counselors  were  part  of 
the  reason,  encouraging  kids  to  become  immersed  in  it.  Main  says, 
"For  our  more  youthful  players,  many  of  whom  come  home  from 
school  and  find  neither  Mom  nor  Dad  there,  Nintendo  came  to 
mean  more  to  them.  It  filled  a  larger  role  in  their  lives." 

Second,  Nintendo  was  gaining  great  insight  into  its  customers: 
they  were  finding  out  which  groups  were  excited  by  what  games, 
and  how  games  could  be  made  better.  Counselors  gave  pointers 
but  also  queried  callers  about  their  likes  and  dislikes.  "We  used 
those  calls  as  market  research,"  says  Main. 

The  information  about  consumers — not  from  dated  market  re- 
search studies  but  from  the  daily  input  of  diehard  customers— gave 
Nintendo  a  living,  breathing  line  to  its  customers  every  day,  seven 
days  a  week,  twelve  hours  a  day.  The  feedback  helped  steer  the 
company's  product  development  and  marketing  strategies;  the  in- 
formation went  right  back  into  the  development  process. 
Yamauchi  had  always  boasted  that  he  never  let  marketing  people 
influence  R&D,  but  this  stuff  was  too  precious  to  ignore.  Best  of 
all,  since  callers  often  asked  Nintendo  counselors  what  games  were 
coming,  demand  was  created  for  games  months  in  advance 
through  the  phone  network. 

The  counselors  were  some  of  the  first  people  at  Nintendo  to 
realize  that  kids  weren't  the  only  Nintendo  fanatics  out  there. 
Many  of  the  early-morning  callers  were  frustrated  parents,  some  of 


GAME    OVER 


whom  had  been  up  all  night  trying  to  beat  a  game.  "It  kills  them 
that  their  children  are  better  at  something  than  they  are,"  says 
Blaine  Phelps.  "They're  obsessed  with  beating  their  kids."  When 
Peter  Main  realized  how  many  interested  adults  there  were,  he 
began  directing  marketing  campaigns  toward  them.  Similarly,  calls 
from  girls  gave  the  company  a  better  handle  on  what  would  make 
more  girls  buy  systems  and  games. 

Don  James  ran  another  operation  that  was  part  of  the  marketing 
loop.  In  addition  to  his  work  preparing  Nintendo  for  trade  shows 
(Nintendo's  CES  booths  became  the  largest  in  the  consumer  in- 
dustry, 60,000  square  feet  of  light  shows,  lasers,  rock  music,  and 
dancing  girls)  and  overseeing  design  work  done  in-house,  he 
headed  product  analysis,  whose  function  was  to  monitor  and  main- 
tain the  quality  of  games.  It  was  a  way  to  be  certain  that  the  games 
the  counselors  and  Nintendo  Power  recommended  were  good. 
More  important,  it  could  be  used  to  direct  customers  to  the  better 
games. 

When  games  were  nearly  completed  in  Japan,  NCL  sent  them  to 
Seattle,  where  James's  crew  reviewed  them  for  the  American  mar- 
ket. They  checked  the  text  and  characters  in  every  game  and  fixed 
on-screen  instructions  and  dialogue  written  in  "Janglish,"  the  Jap- 
anese designers'  version  of  English.  "GIVE  YOUR  BEST  AND 
LAUGH  A  COAT,"  read  the  instructions  to  one  game.  "GET 
WEAPON.  PECK  CROSS  TABLE." 

In  addition  to  improper  English,  the  product-analysis  people 
were  on  the  lookout  for  (presumably)  inadvertent  racial  slurs.  The 
object  of  one  game  called  "Gumshoe"  was  to  brutally  slaughter 
American  Indians  (they  were  transformed  into  generic  bad  guys). 
In  "Casino,"  the  only  thief  was  black,  so  the  man's  skin  tone  was 
changed.  In  one  game,  the  "bare-breasted  snake  women"  were 
renamed  Medusas  and  "hell  hounds"  were  renamed  Cerberuses, 
after  the  mythological  dog  that  guarded  the  entrance  to  Hades.  In 
another  game,  the  enemy  was  called  a  Jew's  Ear,  which  was  the 
translation  in  a  Japanese  dictionary  for  a  kind  of  starfish.  The 
memo  to  Japan  read:  "Please  remove  Jew's  ear." 

Games  also  had  to  be  extraordinary  on  their  own  merits,  not 
dependent  on  characters  that  were  well  known  in  Japan  but  not  in 
the  United  States.  Eventually  James  initiated  a  formal  evaluation 


ENTER    THE    DRAGON  185 


process  headed  by  himself,  Howard  Phillips,  and  Shigeru  Ota, 
known  collectively  as  the  Big  Three. 

At  first  the  evaluations  were  arbitrary  and  haphazard,  but  soon 
Ota  (before  he  was  tapped  to  go  to  Frankfurt  to  run  Nintendo  of 
Europe)  adapted  a  system  that  had  been  used  in  Japan.  He  devel- 
oped a  forty-point  scale  on  which  each  game  was  to  be  rated.  The 
system  had  eight  categories,  each  one  worth  up  to  five  points.  The 
Big  Three  played  every  new  game  until  they  got  a  feel  for  it.  Then 
they  evaluated  it  for  attributes  such  as  challenge,  graphics,  and  fun. 
Some  games  were  sent  back  for  revision;  some  were  killed.  If  there 
were  doubts,  a  larger  group  of  evaluators,  mostly  game  counselors, 
gave  their  opinions.  Phil  Sandoff  was  part  of  the  GC6  (which  sim- 
ply stood  for  "six  game  counselors").  "We're  tough,"  Sandoff  says. 
"First  you  think  every  game  is  the  greatest.  Then  you  get  more 
critical." 

After  the  evaluations,  Arakawa  had  a  good  idea  of  how  a  game 
would  do  in  the  marketplace.  However,  there  were  occasions  when 
doubt  persisted;  for  example,  if  the  Big  Three  and  GC6  disagreed. 
If  Arakawa  wanted  more  feedback,  the  toughest  critics  of  all  were 
called  in.  Hidden  in  a  room  behind  a  one-way  mirror,  Arakawa 
and  James  watched  kids  play  the  game.  "Sometimes  you  cannot 
get  the  honest  answer  by  asking  questions  of  children,"  Arakawa 
says,  remembering  the  failed  focus  groups  back  in  New  Jersey. 
"But  if  you  watch  their  faces  while  they  are  playing,  you  can  tell 
very  easily  whether  the  game  is  good  or  not.  We  have  more  than  90 
percent  success  in  judging  games." 

The  most  important  evaluator  for  the  company  in  the  early  days 
was  Howard  Phillips,  who  played  more  often  and  better  than  any- 
one else  on  Nintendo's  staff.  Phillips  now  wore  pastel  bow  ties  and 
white  oxford  shirts.  Since  shaving  off  the  Manson  beard,  he  had 
begun  to  look  even  more  like  Howdy  Doody.  He  never  seemed  to 
age.  Arakawa  called  him  one  day  to  say  that  he  had  decided  to 
upgrade  his  title  in  the  organization:  henceforth,  Phillips  would  be 
NOA's  Game  Master,  the  Jedi  of  the  video-game  world. 

The  Game  Master  knew  every  game  inside  out.  As  part  of  the 
Big  Three,  he  continued  to  play  all  new  games  and  give  feedback 
to  the  developers.  His  primary  responsibility  was,  he  said,  as  a 
player's  advocate,  influencing  the  designers.  "These  guys  have 


1B6  GAME    OVER 


been  locked  away  for  eight  months  or  a  year  working  on  a  project," 
he  says.  "It's  their  baby,  but  somebody  has  to  tell  them,  'There's  a 
lot  of  great  stuff  in  here,  but  this  part  just  doesn't  make  it.' 

"Within  the  company,  all  the  people  with  straight  ties— sorry, 
guys — who  are  not  really  active  users  don't  necessarily  know  what 
makes  a  game  work  or  not  work."  Phillips  could  critique  a  game  as 
deftly  as  Pauline  Kael  dispatched  movies,  although  sometimes  his 
reason  for  liking  or  disliking  a  game  could  consist  of  no  more  than 
"just  because." 

Arakawa  came  to  trust  this  response,  for  Phillips  consistently 
judged  games  better  than  anyone.  He  mastered  more  than  five 
hundred.  ("Through  perseverance  and  insider  knowledge,"  he 
said.)  Could  he  beat  anybody?  He  answered  modestly,  "I  don't 
know  if  I'm  the  best  player  in  the  world,  but  I  know  that  on  any 
given  day  I  could  beat  just  about  anybody  on  any  game."  The  key 
was  that  he  wasn't  trying  to  think  like  players;  he  was  a  player.  His 
most  common  advice  was  a  terse  "Practice." 


\ 


\ 


THE  GRINCH  WHO  v\ 

5TOLE  CHRISTMAS  ^ 


The  Nintendo  marketing  blitz  had  the  biggest  companies  in  Amer- 
ica aiding  and  abetting  (and,  of  course,  cashing  in  on)  the  Nin- 
tendo invasion.  Promotions  were  directed  by  Peter  Main  and  Bill 
White,  whom  Main  had  hired  in  1987. 

White,  who  wore  gold-framed  John  Lennon  specs,  brushed  his 
fair  hair  back  around  a  youthful  face.  Although  he  was  always 
dressed  in  standard  corporate  attire,  he  looked  like  he  would  be 
more  at  ease  behind  a  drum  kit  in  a  garage  rock  band  than  inside 
the  high-pressure  upper  echelons  of  Nintendo. 

White's  father  and  sister  were  in  advertising.  After  college,  Bill 
got  a  job  at  Carnation  while  studying  for  an  MBA  in  the  evenings. 
Later  he  worked  in  the  packaged-goods  industry.  When  his  boss 
convinced  him  to  follow  him  from  the  "stodgy"  packaged-goods 
business  to  high  technology,  White  moved  to  Seattle  to  work  as 
director  of  marketing  for  a  computer  software  company.  Frus- 
trated there,  he  picked  up  a  copy  of  Advertising  Age  one  day  and 


1  SB  GAME    OVER 


saw  that  Nintendo  was  looking  for  a  director  of  advertising  and 
public  relations.  Two  weeks  later  he  was  interviewed  by  Main, 
Arakawa,  and  Lincoln,  and  a  week  after  that  he  had  the  job. 

White  saw  that  Nintendo  was  dominated  by  its  high-powered 
marketing  machine.  Since  the  company  had  so  few  products,  it 
made  only  a  few  commercials  a  year.  This  meant  the  quality  could 
be— had  to  be — phenomenal.  The  budget  could  go  up  to  $5  million 
for  one  commercial,  easily  four  or  five  times  more  than  most  other 
companies  spent.  In  spite  of  this,  because  the  advertising  was  so 
selective  and  specialized,  the  total  advertising  budget  represented 
only  2  percent  of  sales,  compared  to  the  17  or  18  percent  of  many 
other  companies. 

In  his  dealings  with  the  press,  White  quickly  realized  why  work- 
ing for  a  Japanese  company  was  unique.  The  attitude  of  the  press 
toward  Nintendo  seemed  extra  critical;  it  had  to  be  on  the  defen- 
sive on  many  issues,  but  without  appearing  defensive. 

Nintendo's  sudden,  pervasive  infiltration  of  America  was  like 
nothing  White  had  seen  before.  The  game  counselors,  the  maga- 
zine, the  merchandising,  and  the  TV  shows  helped  make  Nintendo 
far  more  than  just  a  new  hot  product.  It  became  a  culture  unto 
itself,  and  in  spite  of  growing  concerns  about  Nintendo  in  Wash- 
ington, D.C.,  and  a  critical  press,  that  culture  kept  growing. 

White  found  advertising  at  Nintendo  similar  to  what  it  must  be 
like  at  a  movie  studio.  Arakawa  made  the  decision  that  software, 
not  hardware,  should  be  the  focus  of  most  advertising.  "It  is  a 
software-driven  business,"  White  says.  "The  job  is  not  so  much  to 
increase  long-term  brand  equity  as  it  is  to  build  excitement  around 
the  next  hit." 

One  of  the  first  commercials  made  under  White  was  the  market 
introduction  for  "The  Legend  of  Zelda,"  which  received  a  great 
deal  of  attention  in  the  ad  industry.  A  wiry-haired,  nerdy  guy  walks 
through  the  dark  screaming  for  Zelda.  The  next  commercial,  in 
November  1987,  was  for  "Mike  Tyson's  Punch-Out!"  It  had  beefy 
Tyson  walking  into  a  room,  sitting  down,  grabbing  an  NES  with  his 
mammoth  hands,  shoving  in  a  cartridge,  and  facing  a  wall  full  of 
screens.  Then  he  looks  into  the  camera  and  breaks  out  laughing.  In 
another,  a  Nintendo  "Ice  Hockey"  commercial,  a  kid  is  playing  the 


THE    GHINCH    WHO    STOLE    CHRISTMAS  189 

game  in  front  of  a  TV  set  when  a  puck  comes  crashing  through  the 
screen  into  his  living  room. 

In  spite  of  these  great  commercials,  in  1990  White  and  Main 
oversaw  a  shakeup  in  which  they  withdrew  $20  to  $35  million  in 
Nintendo  accounts  from  the  firms  of  McCann-Erickson  and  Foote, 
Cone  &  Belding.  Bill  White  said  it  was  "philosophical  differences" 
that  caused  the  split.  Leo  Burnett,  the  large  Chicago  agency  that 
advertised  Miller  beer  and  McDonald's,  got  the  account.  One  in- 
dustry analyst  said  the  decision  was  made  almost  arbitrarily.  "They 
shake  things  up  so  that  no  one  becomes  complacent,"  he  says. 
"You  earn  your  money  working  for  Nintendo;  they'll  drive  you 
crazy  before  it's  over."  Everything  was  calculated.  Kids  didn't  buy 
the  lion's  share  of  video  games;  parents  did.  Nonetheless,  Nin- 
tendo advertised  almost  exclusively  to  children  and  teens.  Kids 
controlled  not  only  their  own  spending  dollars  but  their  families'. 

There  were  other  ways  to  reach  parents.  In  early  1988,  there 
were  discussions  at  Nintendo  about  the  benefits  of  broadening  the 
company's  message  to  an  audience  beyond  six-to-fourteen-year- 
old  boys  (if  nothing  else,  to  gain  some  respectability  from  parents 
who  were  skeptical  about  video  games).  Bill  White  and  Peter  Main 
determined  that  there  was  no  need  to  ante  up  the  many  millions  of 
dollars  necessary  to  "buy  another  demographic  target"  with  televi- 
sion advertising.  Instead,  they  sought  promotion  partners  who  al- 
ready targeted  these  broader  audiences. 

Pepsi  had  the  right  image  and  audience,  so  White  went  after  it. 
Pepsi's  promotion  team  was  cautious.  They  studied  Nintendo's 
market  research  and  agreed  to  test  an  association  with  Nintendo 
with  one  of  its  smaller  brands,  Slice.  The  national  TV  promotion, 
which  gave  Nintendo  systems  and  games  away  with  Slice,  worked 
so  well  that  Pepsi  executives  said  they  wanted  to  plan  a  bigger  tie- 
in  for  their  enormous  Christmas  advertising  campaign,  this  time 
with  all  the  Pepsi  products.  Since  Pepsi  targeted  the  twelve-to- 
thirty-four-year-old  audience,  the  key  soft-drink  consumers,  Nin- 
tendo got  vast  amounts  of  exposure— and  the  credibility  associated 
with  Pepsi — for  nothing.  Commercials  and  in-store  displays  were 
only  one  way  Nintendo  benefited  from  the  Pepsi  tie-in.  Pepsi 
bought  nearly  $10  million  worth  of  Nintendo  products  at  the  same 


190  GAME    OVER 


wholesale  price  Toys  "R"  Us  and  other  retailers  paid,  and  Nin- 
tendo was  advertised  on  the  outside  of  2  billion  cans  of  Pepsi.  In 
return,  Pepsi  got  the  cachet  of  being  associated  with  Nintendo. 

The  promotion  was  so  successful  that  Nintendo  looked  for  other 
partners  to  increase  its  exposure  to  parents  and  other  adults. 
Procter  &  Gamble  approached  Bill  White  and  suggested  a  "dealer 
loader"  that  retailers  put  up  in  stores  throughout  the  country  fea- 
turing Nintendo  characters  on  Tide  detergent  displays.  For  Nin- 
tendo, the  association  with  a  product  that  was  so  well  accepted  in 
America  brought  more  immediate  credibility.  Tens  of  millions  of 
people  were  reached  in  the  $20  million  promotion. 

The  next  partner  Nintendo  targeted  was  McDonald's.  In  1989, 
White  and  Main  sent  a  letter  of  introduction  to  the  company's 
marketing  division.  The  head  of  children's  marketing  at  McDon- 
ald's was  shown  a  preview  of  "Super  Mario  Bros.  3."  After  examin- 
ing Nintendo's  demographics  and  the  results  of  the  Pepsi  and  Tide 
promotions,  she  launched  an  entire  campaign — including  "Mario" 
Happy  Meals — around  "Super  Mario  Bros.  3." 

Another  promotion  for  "Super  Mario  Bros.  3"  proved  more 
valuable  than  any  paid  advertising  ever  could.  Tom  Pollack,  the 
respected  president  of  Universal  Studios,  met  with  Bill  White  and 
Peter  Main  and  told  them  he  wanted  to  make  a  movie  around  a 
video  game.  The  Jetsons,  a  film  that  Universal  had  planned  for  a 
Christmas  1989  release,  wasn't  going  to  be  ready  and  the  studio 
needed  a  holiday  film.  When  he  heard  about  the  various  Nintendo 
competitions,  Pollack  came  up  with  the  idea  of  a  Tommy  for  young 
kids  that  was  called  The  Wizard. 

Nintendo  received  a  licensing  fee  from  Universal,  of  course,  and 
approval  of  both  the  script  and  the  film's  game  footage.  Bill  White 
went  to  the  film  set  in  Reno  to  see  how  things  were  going,  even 
though  "all  we  were  really  worried  about  was  just  making  sure  that 
the  game  footage  was  spectacular." 

It  was.  The  "video  Armageddon"  scene  was  filmed  at  the  theater 
at  Cal  Arts,  the  college  in  Southern  California.  Universal  spent 
$100,000  on  this  set  alone.  As  the  movie's  main  character  took 
the  stage,  the  on-screen  audience  went  wild  when  the  feverish 
announcer  told  the  contestants  that  the  final,  tie-breaking  com- 
petition was  to  be  on  a  game  they  had  never  seen  before,  the 


■ THE    GRINCH    WHO    STOLE    CHRISTMAS  191 

newest  and  best  video  game  in  the  world.  Dramatically,  the 
curtains  were  drawn  and  a  wall  of  monitors  was  fired  up.  "Here  it 
is,  ladies  and  gentleman,"  the  announcer  screamed,  "  'SUPER 
MARIO  BROS.  3!F  " 

Nintendo  itself  could  not  have  dreamed  up  a  better  promotion. 
The  movie  was  ready  by  November,  four  months  before  the  game 
was  launched.  The  excitement  in  the  theaters  was  far  greater  for 
"SMB3"  than  for  the  movie  itself.  The  Wizard  made  money  even 
with  its  relatively  small  box-office  gross,  but  the  groundswell  of 
anticipation  it  created  for  "Super  Mario  Bros.  3"  was  enormous. 

When  the  game  finally  arrived  in  stores,  the  hype  had  been  so 
intensive  that  the  resulting  rush  for  the  game  shocked  even  Nin- 
tendo. Bill  White's  team  oversaw  the  creation  of  a  television  com- 
mercial that  showed  no  game  footage  at  all,  but  simply  thousands 
of  kids  chanting  passionately,  "Mar-i-o,  Mar-i-o,  Mar-i-o  .  .  ." 
The  camera  pulled  back  and  the  faces  of  impassioned  boys  and 
girls — decidedly  white  and  clean-cut — became  a  sea  of  people  call- 
ing out  Mario's  name.  Then  the  camera  zoomed  back  to  a  point 
out  in  space.  Looking  back  toward  earth,  we  see  Mario's  face  in 
place  of  what  should  have  been  the  North  American  continent. 

Nintendo  reaped  the  rewards  when  "Super  Mario  Bros.  3"  went 
on  to  outsell  any  video  game  in  history,  and  gross  more  than  $500 
million. 

Event  marketing,  as  an  NOA  report  called  it,  was  another  tactic. 
Nintendo  hosted  a  thirty-city,  eight-month-long  nationwide  video- 
game competition  pitting  local  champions  and  then  regional  cham- 
pions against  one  another.  The  grand  finale,  the  Nintendo 
PowerFest,  was  held  at  Universal  Studios  in  December  1990. 
There  was  a  Nintendo  world  championship  in  1991  and,  in  the 
spring,  the  company  held  the  Nintendo  Campus  Challenge,  a  two- 
day  video-game  competition  on  fifty  college  campuses.  It  was 
heralded  as  "a  nationwide  search  for  a  college  valedictorian  of 
video-game  play." 

Al  Kahn,  heavyset,  with  sparse  red  hair,  ran  Leisure  Concepts,  a 
licensing  company.  In  1988,  Arakawa,  whom  he  knew  from  when 
he  worked  at  Coleco,  gave  him  the  rights — for  a  standard  royalty — 
to  market  Nintendo's  characters.  Kahn  licensed  game  characters 


192  GAME    OVER 


for  everything  from  TV  shows  and  records  to  lunch  boxes  and  bed 
linens,  and  the  Nintendo  license  became  one  of  the  most  success- 
ful in  history.  There  were  "Zelda"  board  games,  "Donkey  Kong" 
watches,  and  "Mario"  everything. 

The  first  Nintendo  television  show,  The  Super  Mario  Bros.  Super 
Show,  first  aired  in  fall  1988,  and  soon  went  into  syndication.  In  fall 
1990,  Captain  N:  The  Game  Master  became  a  network  show,  and 
eventually  there  was  a  third  show,  Super  Mario  World.  For  several 
years  running,  Nintendo  shows  were  numbers  one  and  two  on 
NBC's  Saturday-morning  schedule. 

The  television  shows  brought  Nintendo  licensing  fees,  but  this 
wasn't  the  primary  benefit.  "They're  about  trying  to  boost  aware- 
ness of  the  characters,"  White  says.  "They're  part  of  the  endeavor 
to  sell  more  Mario  product  by  increasing  the  popularity  and 
likability  of  the  character,  which,  in  turn,  will  help  our  character- 
licensing  program — sales  of  T-shirts  and  all  that — and  of  course 
the  games  themselves.  There's  really  very  little  downside  if  the 
show  is  done  in  a  quality  manner."  The  fact  is  that  no  one  could 
have  confused  the  television  shows  with  anything  approaching 
quality,  but  they  were  no  worse  than  other  Saturday-morning  fare. 

In  addition  to  all  the  other  licensing  deals,  Bill  White  also  con- 
templated the  idea  of  a  feature  film  for  Mario.  Arakawa  told  him 
to  research  it  slowly  and  meticulously.  White  made  some  calls  and 
heard  back  from  the  man  in  Hollywood  who  handles  Nintendo's 
cartoon  shows:  Dustin  Hoffman  wanted  to  play  Mario.  Hoffman's 
agent,  Mike  Ovitz,  had  contacted  them  to  arrange  a  meeting. 

In  New  York  for  the  newly  devised  Nintendo  World  Champion- 
ships, White  sat  down  with  Hoffman  in  a  hotel  room  on  the  Upper 
East  Side,  and  the  two  spent  an  hour  discussing  the  movie.  Hoff- 
man's kids  were  Nintendo  maniacs,  and  he  said  he  was  dying  to 
play  Mario.  White  found  himself  in  the  awkward  position  of  having 
to  tell  Hoffman  that  they  were  shopping  the  property.  (Nintendo 
wanted  Danny  DeVito,  as  close  to  a  dead  ringer  for  Mario  as 
Hollywood  had  to  offer.) 

There  was  no  lack  of  interest  in  Hollywood  when  it  came  to 
cashing  in  on  the  Nintendo  craze.  Arakawa  rejected  an  offer  from 
Fox  because  "they  didn't  understand  the  character."  A  feature 
deal  was  finally  ironed  out  with  Jake  Eberts  and  Roland  Joffe's 


THE    GRINCH    WHO    STOLE    CHRISTMAS  1  93 

company,  called  Lightmotive.  They  hired  Barry  Morrow,  who 
cowrote  Rain  Man,  to  write  a  script,  and  a  series  of  rewrite  men 
were  brought  in.  The  directing  team  of  Rocky  Morton  and  An- 
nabel Jankel,  creators  of  the  original  Max  Headroom  film  for  Brit- 
ish television,  was  signed  up.  The  production  designer  was  David 
Snyder,  whose  impressive  credits  included  Blade  Runner  and  Pee- 
wee's  Big  Adventure. 

The  Nintendo  movie  went  into  production  in  May  1992  for  a 
May  1993  release — without  Danny  DeVito,  who  had  ultimately 
turned  down  the  part  of  Mario.  After  all  the  talk  about  Hoffman 
and  DeVito  (Hoffman's  agency,  Creative  Artists,  says  he  never 
considered  the  part),  Nintendo  had  to  start  from  scratch.  Although 
Tom  Hanks  had  agreed  to  accept  the  role  for  $5  million,  Nintendo 
went  with  Bob  Hoskins,  popular  after  his  role  in  Who  Framed 
Roger  Rabbit,  but  much  less  expensive.  The  bad  guy,  King  Koopa, 
was  played  by  Dennis  Hopper. 

There  were  a  host  of  other  promotions.  In  1991  MCA  released  a 
record  of  "Mario"  songs  that  included  a  "Mario"  comic  book. 
Among  the  musical  numbers  was  the  last  song  Roy  Orbison  re- 
corded before  he  died.  There  was  another  feature  movie  in  the 
works,  too,  an  animated  movie  similar  to  (but  hopefully  better 
than)  the  TV  cartoons. 

Long  before  any  talk  about  movies  was  heard  in  the  halls  and 
offices  of  Nintendo,  Peter  Main  had  told  Arakawa  that  he  felt  it 
wise  to  market  video  games  like  movies — released  cautiously,  ra- 
tioned so  that  demand  outpaced  availability,  and  then  withdrawn 
from  circulation  as  soon  as  interest  began  to  wane.  This  rationing 
tactic,  treating  games  like  priceless  objects,  worked.  After  all  the 
hype  about  a  new  game  took  hold,  kids  dragged  their  parents  to 
stores,  but  outlets  couldn't  keep  the  games  in  stock.  The  rush 
to  get  games  such  as  "Super  Mario  Bros.  3"  or  "Link,"  the  sequel 
to  "The  Legend  of  Zelda,"  caused  near  riots  of  excited  game- 
buying. 

The  competition  to  acquire  games  rivaled  that  for  tickets  to 
Michael  Jackson's  last  concert  tour.  Ultimately  more  product  was 
sold.  A  kid  who  was  absolutely  dying  to  get  "Link"  would  arrive  at 
a  store,  only  to  find  it  sold  out.  Maybe  he  would  try  a  few  other 


GAME    OVER 


stores  without  success,  but  then  he  would  buy  another  Nintendo 
game,  so  that  his  parents  would  end  up  paying  $30,  $40,  or  $50  for 
a  second  or  third  choice.  Then,  a  week  or  month  later,  a  new 
supply  of  "Link"  would  come  in.  The  kid  wanted  "Link"  more  than 
ever  then,  and  unless  his  were  the  most  iron-willed  of  parents,  they 
would  succumb.  Even  the  kids  whose  parents  held  out  still  man- 
aged to  get  games;  in  1989,  in  a  survey  of  what  kids  in  Sandwich, 
Illinois,  bought  with  their  allowances  and  other  money  they 
earned,  the  near  unanimous  choice  was  Nintendo  games. 

The  editor  of  one  toy-industry  journal  noted  that  "Nintendo  has 
become  a  name  like  Disney  or  McDonald's.  They've  done  it  by 
doling  out  games  like  Godiva  chocolates."  In  1988,  Fortune  ob- 
served that  "so  far  the  strategy  looks  like  a  winner." 

"Inventory  management"  is  what  Peter  Main  called  it.  The  Atari 
wave  had  floundered  in  large  part  because  of  a  flooded  market. 
Main  made  certain  that  scarcity  whetted  the  public's  appetite  and 
sustained  demand  as  Coleco  had  done  in  1984,  when  there  was  a 
shortage  of  Cabbage  Patch  Kids.  By  design,  Nintendo  did  not  fill 
all  of  the  retailers'  orders,  and  it  kept  half  or  more  of  its  library  of 
games  inactive.  In  1988,  for  instance,  it  sold  33  million  cartridges, 
but  market  surveys  showed  it  could  have  sold  45  million.  That  year 
retailers  had  requested  110  million  cartridges,  or  nearly  2.5  times 
the  indicated  demand.  Main  said  that  retailers  exaggerated  de- 
mand and  Nintendo  would  rather  have  them  pleading  for  more 
than  have  to  worry  about  excess  inventory. 

In  contrast  to  the  prerecorded-video  business,  in  which  an  aver- 
age tape  had  the  longevity  of  90  to  120  days,  some  Nintendo  games 
were  popular  for  a  year  or  more.  If  a  game  came  through  the 
evaluation  process  with  a  thirty-six  or  thirty-seven  on  the  forty- 
point  scale,  Nintendo  viewed  it  as  "a  potential  grand  slam,"  ac- 
cording to  Main.  A  hugely  successful  game  only  had  to  sell  500,000 
copies,  and  grand  slams  could  sell  millions. 

When  Nintendo  released  "Dr.  Mario"  in  1991,  Charles  Lazarus, 
head  of  Toys  "R"  Us,  called  Peter  Main.  "It  looks  like  we're  going 
to  be  short  on  'Dr.  Mario,'  "  he  said.  "What  are  you  going  to  do 
about  it?" 

Main  made  certain  his  largest  customers  got  a  healthy  share  of 
the  games,  but  the  company  refused  to  cave  in  to  their  demands; 


THE    GRINCH    WHO    STOLE    CHRISTMAS  1  95 

no  company  had  all  of  its  orders  filled  all  the  time.  By  then,  the  toy 
and  electronics  as  well  as  department  stores  were  dependent  on 
Nintendo,  not  the  other  way  around.  NOA  accounted  for  an  inor- 
dinate amount  of  the  revenue  of  some  companies.  For  Toys  "R" 
Us,  it  meant  17  percent  of  its  sales  and  22  percent  of  its  profits. 
Nintendo  called  the  shots  even  when  it  came  to  companies  used  to 
throwing  their  muscle  around. 

The  fact  that  the  parent  company  and  the  president  of  its  Amer- 
ican subsidiary  were  Japanese  exacerbated  NOA's  problems  when 
it  played  rough.  Tactics  that  would  have  been  called  aggressive  if 
used  by  an  American  company  were  viewed  in  some  quarters  as 
unscrupulous  when  the  company  was  Japanese.  In  only  thirty-six 
months  Nintendo  had  gone  from  near  anonymity  to  the  point 
where  it  accounted  for  20  percent  of  the  toy  industry  and  large 
percentages  of  other  retailers'  gross  sales.  It  was  felt  that  "by  defi- 
nition we  must  be  doing  something  illegal,"  Peter  Main  says.  No 
industry  wanted  to  be  so  dependent  on  a  single  company,  espe- 
cially a  Japanese  company.  In  Main's  view,  "Most  of  the  criticism 
is  from  those  who  have  decided  not  to  join  the  club."  Some,  how- 
ever, hadn't  been  invited. 

NOA's  reputation  began  to  be  suspect  around  the  time  of  the 
most  severe  game  shortages.  Although  Nintendo  orchestrated 
some  of  the  shortages,  they  were  worse  than  it  had  planned,  and 
consumer  demand  was  higher  than  the  most  ambitious  forecasts. 
In  1990,  retailers  were  furious  when  Nintendo  couldn't  deliver  as 
many  systems  as  they  could  have  sold  that  year. 

Nintendo  had  long  since  terminated  its  money-back-guarantee 
policy  and  replaced  it  with  tough  terms:  order,  receive  shipment, 
and  pay.  The  sales  reps  in  the  front  lines  made  certain  that  retail- 
ers kept  small  inventories.  By  keeping  customers  on  a  short  leash, 
Nintendo  made  enemies,  but  cash  kept  rolling  in.  This  policy 
proved  its  worth  in  1990  when  the  second  largest  toy-store  chain  in 
the  United  States,  Child  World,  had  serious  financial  difficulties 
and  was  on  its  way  to  bankruptcy.  A  listing  of  Child  World's  credi- 
tors was  announced  in  December.  Companies  such  as  Hasbro  and 
Mattel  were  owed  up  to  $25  million,  but  though  it  had  accounted 
for  almost  20  percent  of  Child  World's  business,  Nintendo  wasn't 
on  the  list.  "These  other  guys  were  pumping  all  this  product  into  a 


196  GAME    OVER 


bottomless  pit,"  Peter  Main  said.  "They  are  still  owed  that  money 
today."  Because  Nintendo  was  working  so  closely  with  Child  World 
and  knew,  from  constant  inspection  of  financial  statements,  that 
the  company  was  in  trouble,  the  retailer  was  told  that  it  had  to  pay 
for  its  Nintendo  product  as  much  as  a  year  in  advance.  "We  are  not 
loved  for  that,"  Main  says. 

Nintendo  also  made  retailers  furious  with  its  return  policy. 
American  retailers  proudly  boast,  "Customer  satisfaction  guaran- 
teed or  your  money  cheerfully  refunded."  However,  when  consum- 
ers return  TVs  and  toasters  to  Macy's  or  Sears,  the  retailers  return 
them  to  the  manufacturers. 

In  contrast,  Nintendo  said  it  would  guarantee  low  defect  rates.  It 
claimed  its  defect  rate  was  0.9  percent  for  hardware  and  0.25  per- 
cent for  software,  numbers  similar  to  the  VCR  industry's  high 
standards.  Still,  retailers  sent  systems  back  to  Nintendo  that  had 
been  returned  by  customers  for  reasons  other  than  defects;  they 
claimed  to  be  dissatisfied  or,  typically,  that  their  dog  had  chewed 
up  a  controller. 

Nintendo's  reaction  was  to  initiate  a  service  network  around  the 
country.  Service  would  be  free  for  ninety  days;  after  that,  custom- 
ers would  have  to  pay.  Because  of  their  extensive  service  network 
and  the  promised  low  defect  rates,  Nintendo  announced  a  new 
policy:  no  returns.  Once  a  game  cartridge  was  opened,  a  refund 
was  out  of  the  question. 

Pandemonium  followed.  One  of  the  largest  retailers  in  the  coun- 
try threatened  to  stop  carrying  Nintendo  Systems  and  products. 
Nintendo  refused  to  change  the  policy  and  the  retailer  refused  the 
products.  The  retailer  held  out  for  three  months;  after  that  it 
crawled  back  and  agreed  to  Nintendo's  terms. 

Piles  of  cash  poured  forth  from  America  to  Japan.  NCL's  net 
sales  figures  shot  up,  mostly  because  of  its  U.S.  subsidiary. 
Arakawa  became  responsible  for  up  to  60  percent  of  Yamauchi's 
business,  according  to  Hiroshi  Imanishi.  NCL's  net  sales  in  1987 
were  $1  billion.  In  1988,  they  went  to  $1.5  billion.  In  1989  and  1990 
they  topped  $2  billion,  and  in  1991  they  shot  up  to  more  than  $3.3 
billion.  In  1992,  Nintendo  foresaw  sales  topping  $4.5  billion.  Pretax 
profits  had  risen  from  $186  million  in  1987  to  more  than  a  billion 
dollars  in  1991  and  1992. 


"  THE    GRINCH    WHO    STOLE    CHRISTMAS  1  9  "7 

Nintendo's  stock  soared.  In  1991  the  company  reached  number 
eighty-six  on  Business  Week's  Global  1,000.  In  U.S.  dollars,  the 
company's  market  value  was  $14.56  billion,  and  it  was  ranked 
twenty-ninth  among  all  Japanese  companies. 

The  relationship  between  Japanese  parents  and  their  American 
subsidiaries  is,  notoriously,  one  of  master  and  slave.  Hiroshi 
Yamauchi,  however,  after  his  initial  reluctance,  gave  Arakawa  far 
more  autonomy  in  running  NOA  than  most  chairmen  of  Japanese 
companies  gave  the  heads  of  their  subsidiaries.  He  still  made  the 
most  significant  decisions  affecting  the  future  of  NCL,  but  he  did 
so  in  consultation  with  Arakawa.  Minoru  Arakawa,  for  his  part,  let 
down  his  guard  somewhat;  he  had  come  to  trust  his  father-in-law's 
instincts.  He  was  in  regular  communication  with  Yamauchi;  they 
often  spoke  several  times  a  day.  As  they  came  to  appreciate  and 
respect  one  another,  the  relationship  between  the  two  men 
changed  and  they  learned  how  to  take  advantage  of  each  other's 
strengths. 

Arakawa  still  became  angry  when  Yamauchi  crossed  the  line  and 
his  advice  seemed  more  like  orders,  and  Yamauchi  remained  frus- 
trated that  Arakawa  wasn't  better  at  communicating  his  plans  and 
motives.  But  Yamauchi's  doubts  about  Arakawa  dissipated  in  pro- 
portion to  the  enormous  amount  of  money  he  was  receiving  from 
NOA.  Yoko  Arakawa  breathed  easier;  she  had  fewer  fears  about 
finding  herself  in  the  middle  of  clashes  between  her  father  and 
husband.  If  anything,  she  was  sometimes  concerned  because  the 
two  men  were  getting  along  so  well. 

As  Yamauchi  had  determined  the  style  of  Nintendo  in  Japan, 
Arakawa  imprinted  his  personality  on  NOA.  His  philosophy 
evolved  into  a  unique  management  style.  There  were  bumpy  mo- 
ments as  the  number  of  employees  grew  with  the  sales  figures,  but 
he  rarely  lost  his  temper  and  never  lost  sight  of  his  goal  of  the 
moment.  He  worked  obsessively  but  he  managed  quietly,  almost  in 
a  whisper.  His  mind  may  have  been  racing,  but  he  said  so  few 
words  that  it  sometimes  made  his  associates  uncomfortable.  His 
silence  was  a  distancing  device;  people  squirmed  while  he  deliber- 
ated. He  never  pontificated  or  lambasted,  and  his  ego  never 
seemed  to  lead  him;  in  fact,  he  did  what  he  could  to  keep  out  of 


1SB  GAME    OVER 


the  limelight.  Peter  Main  and  Howard  Lincoln  made  most  of  the 
required  public  appearances.  Part  of  the  reason  was  that  Arakawa 
was  embarrassed  by  his  slow  and  cautious  English;  also,  he  felt  he 
had  better  things  to  do  with  his  time.  (This  attitude  occasionally 
backfired.  When  Frontline,  public  television's  investigative  pro- 
gram, did  a  piece  on  U.S.-Japanese  trade  tensions,  Arakawa  de- 
clined to  be  interviewed,  sending  Howard  Lincoln  in  his  place.  It 
looked  as  if  Arakawa  had  something  to  hide.) 

In  striking  contrast  with  Nintendo's  tough  image,  Arakawa  was 
almost  always  quiet  and  even  self-deprecating.  He  ruled  by  force  of 
will  rather  than  decibel  level.  NOA  reflected  his  good  humor. 
There  were  video  games  to  play  in  Cafe  Mario,  the  company's 
dining  room,  and  there  was  lots  of  joking  around.  Arakawa  himself 
instigated  some  of  the  better  practical  jokes.  Once  he  circulated  an 
old  photograph  of  Howard  Lincoln  throughout  the  company  as  if  it 
were  an  urgent  memo.  In  the  picture,  taken  in  the  seventies,  Lin- 
coln wore  a  plaid  suit  and  thick  glasses.  On  it  Arakawa  had  written, 
"Would  you  buy  a  used  car  from  this  man?" 

On  another  occasion,  Nintendo  employees  decided  to  "initiate" 
a  new  employee  (formerly  with  Atari,  coincidentally)  who  had  de- 
veloped the  habit  of  parking  his  Porsche  diagonally  across  several 
parking  spaces  so  that  no  one  would  park  too  close  to  his  prized 
auto.  One  day,  everyone,  Arakawa  included,  parked  haphazardly 
around  the  lot.  It  was  the  new  employee's  worst  nightmare:  his  car 
was  in  the  middle  of  hundreds  of  cars,  some  of  them  perilously 
close. 

Professionalism  was  laced  with  northwestern  ease.  AT&T's  exec- 
utives showed  up  on  a  Friday  for  a  meeting  with  Arakawa.  No  one 
had  told  them  about  the  no-suits-on-Friday  dress  code;  they  sat  at 
a  conference  table  in  their  standard  corporate  attire  opposite 
Arakawa,  who  was  wearing  jeans,  a  T-shirt,  and  green  felt  sneak- 
ers. (After  Howard  Lincoln  told  him  he  looked  like  an  elf, 
Arakawa  never  wore  the  shoes  again.) 

In  the  lobby  of  NOA's  headquarters  is  a  smoky  glass  coffee  table 
and  a  crystal  horse's  head  in  a  glass  case.  Three  receptionists  an- 
swer telephones  and  greet  visitors.  After  visitors  are  cleared,  their 


THE    GRINCH    WHO    STOLE    CHRISTMAS  193 

names  are  typed  into  a  computer  and  name  tags  are  printed  out 
before  they  are  allowed  inside. 

The  office  looks  like  most  other  offices  in  high-tech  or  commu- 
nications companies.  There  are  nondescript  lithographs  of  nature 
scenes  on  the  walls  and  pastel-pink  wall  panels,  gray  carpets,  and 
partitions.  Still,  Arakawa's  invisible  imprint  pervades.  Enthusiastic 
employees — many  of  them,  including  some  department  heads, 
conspicuously  young — buzz  in  and  out  of  open-doored  offices  (a 
memo  was  once  distributed  castigating  managers  who  worked  be- 
hind closed  doors).  The  managers'  offices  at  the  periphery  of  the 
building  all  have  large  windows  with  open  blinds.  It  is,  Arakawa 
says,  "for  the  light  from  outside  and  for  clear  thinking."  Everything 
and  everybody  is  connected — the  repair  center  is  near  where  new 
games  are  tested,  which  is  near  where  the  marketing  team  huddles 
to  preview  new  commercials,  which  is  near  where  the  rows  of  game 
counselors  field  telephone  calls  from  across  the  country.  Arakawa 
admits  there  is  nothing  greatly  innovative  about  his  management 
style.  "All  I  have  done  is  taken  the  walls  out  between  our  managers 
and  workers,"  he  says. 

The  corporate  offices  are  also  imbued  with  the  sense  that  Nin- 
tendo deals  not  in  circuits  or  microchips  but  in  fun.  A  dash  through 
the  marketing  department  means  running  past  the  game  counsel- 
ors, glued  to  TV  screens  and  their  "green  bibles."  In  other  corners 
are  the  game  testers  and  evaluators.  On  the  second  floor  is  a 
sample  World  of  Nintendo.  Nearby  is  a  mini-arcade  of  Nintendo 
games.  In  individual  offices  are  reminders  that  the  people  of  Nin- 
tendo are  consumed  by  some  wackier  pursuits.  Offices  are  deco- 
rated with  baseballs,  wind-up  toys,  stuffed  animals,  basketball 
hoops,  and  at  least  one  blow-up  doll. 

At  the  same  time,  there  is  a  sense  that  something  important  is 
happening.  It  is  customary  for  employees  to  work  late,  often  past 
midnight.  There  are  rumors  that  the  pressure,  albeit  subtle,  is  be- 
hind more  than  a  few  martinis  consumed  in  the  evenings  behind 
closed  doors  that  are  never  supposed  to  be  closed.  Employees 
seem  to  work  as  hard  for  Arakawa  as  they  work  to  sell  Nintendo 
products.  In  a  way,  Arakawa  has  succeeded  in  creating,  in  Red- 
mond, Washington,  the  mentality  of  a  Japanese  company. 


GAME    OVER 


Salaries  are  about  average  in  comparison  to  similar  positions  in 
similar  industries  for  the  Seattle  area.  Nintendo  refuses  to  release 
salary  figures.  Since  it  is  not  a  public  company  in  America,  no  one 
knows  the  executives'  salaries.  This  is  significant  because  Nintendo 
is  thereby  not  forced  to  compete  with  the  inflated  salaries  in  the 
industry.  Although  his  company  makes  more  than  American  com- 
panies from  Chrysler  to  IBM,  Arakawa  and  his  vice-presidents 
claim  they  take  home  relatively  modest  salaries.  Nintendo  follows 
the  Japanese  model  of  controlling  executive  compensation  in  rela- 
tion to  salaries  for  starting  workers,  and  all  employees  do  well 
when  the  company  does  well  because  of  a  significant  bonus  pro- 
gram; employees  can  earn  up  to  an  additional  50  percent  of  their 
salary  each  year,  depending  on  the  company's  and  their  individual 
performance. 

Arakawa  and  Howard  Lincoln  spend  a  weekend  twice  a  year 
going  through  all  the  employees'  salaries  and  awarding  bonuses 
based  on  evaluations  made  by  managers.  But  besides  a  decent 
retirement  plan  and  good  health  benefits,  that  is  it.  "Nobody 
around  here  is  going  to  make  zillions  of  dollars,"  Lincoln  says. 
"That's  one  of  the  things  that  you  give  up,  even  though  we  sure  as 
hell  have  made  a  lot  of  people  outside  Nintendo  millionaires." 

If  not  rich,  at  least  they  are  suntanned.  NOA  bought  four  parcels 
of  land  on  Hawaii,  where  Arakawa  built  two  9,000-square-foot 
oceanfront  homes  at  a  cost  of  $20  million.  They  were  ready  in  the 
winter  of  1991,  when  the  Arakawas  and  Lincolns  christened  them 
on  a  vacation.  The  huge  houses  each  have  four  bedrooms  and  open 
common  areas  with  180-degree  epic  views,  a  private  swimming 
pool,  and  access  to  the  Mauna  Lani  Golf  Course.  Employees  can 
rent  the  houses  for  a  subsidized  fee  on  a  first-come,  first-served 
basis.  After  three  months  at  the  company,  any  Nintendo  employee 
can  rent  either  a  room  or  a  whole  house. 

Still,  more  than  bonuses  and  perks  push  the  employees.  With 
rare  exceptions,  Arakawa  fills  high-level  positions  from  within  the 
company.  Nintendo  employees  cite  this  as  the  greatest  benefit  of 
working  for  him.  The  company's  personnel  director  began  as  a 
receptionist.  Howard  Lincoln's  former  secretary  went  on  to  run  the 
licensing  operation.  Counselors  have  become  testers,  and  evalu- 
ators  and  executive  assistants  have  become  finance  managers.  As 


'  THE    GRINCH    WHO    STOLE    CHRISTMAS  201 

in  Japan,  most  employees  enlist  for  the  long  haul.  Attrition  is  low, 
and  with  a  few  notable  exceptions,  defections  are  rare;  no  one 
leaves  Nintendo. 

Arakawa's  primary  concern  is  that  Nintendo  does  not  become 
the  victim  of  out-of-control  growth.  This  is  reflected  in  small  but 
meaningful  touches  (meaningful  particularly  when  compared  with 
companies  that  run  so  much  less  efficiently  than  Nintendo).  There 
are  no  reserved  parking  spaces.  There  is  no  executive  dining  room. 
Cafe  Mario  serves  burgers,  a  special  of  the  day  (chili-mac),  pizza, 
salads,  and  frozen  yogurt  sundaes.  There  are  no  corporate  jets 
("The  day  that  happens  I'm  out  of  here,"  Lincoln  says),  and  there 
is  no  executive  suite  of  managers.  Every  office — including 
Arakawa's  and  Lincoln's — is  a  ten-by-ten-foot  square.  Department 
managers'  offices  are  adjacent  to  the  areas  where  their  people 
work. 

Ever  mindful  of  Atari's  huge  number  of  employees — layers  of 
bureaucracy,  vice-presidents  of  everything  imaginable — Arakawa 
has  initiated  a  system  to  control  hiring  at  Nintendo.  Either  he  or 
Lincoln  have  to  sign  an  approval  before  a  salaried  employee  can  be 
hired.  "We've  made  it  so  difficult  for  anyone  to  hire  a  new  em- 
ployee that  they  better  darn  well  have  a  good  reason  to  do  it," 
Lincoln  says.  The  company  remains  lean  and  mean,  as  Arakawa 
likes  to  say.  For  him,  Japanese  tradition  applies  here:  he  believes 
that  when  an  employee  is  hired,  he  or  she  is  hired  for  good. 

To  keep  communication  open,  Arakawa  has  initiated  weekly 
staff  meetings.  One  week's  meeting  will  be  dedicated  to  the  admin- 
istrative staff,  the  next  to  operations,  and  the  next  to  marketing. 
Arakawa,  Lincoln,  Rogers,  and  Main  always  attend  the  staff  meet- 
ings. Afterward,  the  four  of  them  meet  in  a  conference  room  to 
discuss  whatever  issues  have  been  raised. 

As  Nintendo  grew  and  he  feared  the  company  would  become 
unwieldy,  Arakawa  adopted  a  system  of  "action  memos"  and  an 
authority  chart,  used  in  Japan  for  organizing  companies.  The  levels 
of  responsibility  and  levels  of  communication  that  resulted  are  as 
good  as  carved  in  stone.  Department  heads  each  know  what  the 
others  are  doing,  and  Arakawa  knows  what  they  all  are  doing. 

Expenditures  are  also  carefully  controlled.  Most  managers  can 
spend  up  to  $5,000  without  approval,  but  an  officer  has  to  approve 


202  GAME    OVER 

expenditures  from  $5,000  to  $50,000,  and  Arakawa  has  to  approve 
anything  above  that.  Action  memos  about  smaller  transactions  and 
other  business  decisions  still  cross  Arakawa's  desk.  It  is  a  way  for 
him  to  know  what  is  going  on  and  to  be  able  to  track  who  makes 
which  decisions.  Anyone  who  signs  off  on  an  action  memo  is  ac- 
countable. Nothing — from  major  purchases  to  press  releases — falls 
between  the  cracks.  It  is  important  to  Arakawa  that  there  be  no 
surprises. 

Arakawa  feels  he  has  to  be  a  better  organizer  than  his  father-in- 
law.  He  does  not  have  Yamauchi's  sixth  sense  about  products,  and 
occasionally  he  is  wrong.  He  believes  that  no  one  can  learn  that 
sort  of  judgment.  "You  are  born  with  it,"  he  says.  "No  matter  how 
I  study  and  how  I  train  myself,  I  will  never  have  those  talents."  But, 
he  says,  "my  talent  is  maybe  to  find  somebody  who  does  have  those 
talents."  He  does  have  a  knack  for  choosing  exceptional  people. 
"Arakawa  is  held  up  by  the  top  people  around  him,"  an  employee 
says. 

Nintendo  took  over  the  toy  business,  a  volatile  and  cut-throat 
multibillion-dollar  industry,  in  1988. 

So  much  money  was  at  stake  in  the  industry  that  careers  rou- 
tinely were  made  or  destroyed  based  on  one  product.  It  cost  mil- 
lions to  develop  and  manufacture  a  new  toy  and  pre-test  it  with 
kids,  and  then  tens  or  hundreds  of  millions  to  go  into  full  produc- 
tion and  to  market.  Risks  were  huge,  and  except  for  staple  toys  like 
Barbie  and  Matchbox  cars,  the  biggest  hits  came  and  went  with  the 
whims  of  millions  of  kids. 

The  toy  industry  was  dominated  by  a  few  giants.  In  the  race  for 
product  and  market  share,  several  companies  gobbled  up  many  of 
the  smaller  players.  Hasbro,  which  had  already  acquired  Playskool 
and  Milton  Bradley,  bought  Tonka,  which  also  owned  Parker 
Brothers  and  Kenner  Toys,  in  1991.  ("G.I.  Joe  and  the  Real 
Ghostbusters  join  forces,"  the  press  said.)  Hasbro  then  went  off  to 
battle  against  Mattel,  taking  over  the  number-one  spot.  To  acquire 
new  companies,  the  majors  took  on  tremendous  debt  and  interest 
commitments.  This  situation — plus  the  added  effect  of  the  reces- 
sion, which  reduced  discretionary  spending — meant  that  in  the  late 
1980s  and  early  1990s,  toy  companies  had  to  cut  back  on  R&D. 


THE    GRINCH    WHO    STOLE    CHRISTMAS  203 

The  result  was  that  nothing  dramatically  new  came  from  the  toy 
business.  In  turn,  no  innovation  meant  bored  customers  who  went 
where  the  excitement  was:  Nintendo. 

Nintendo  ate  up  a  larger  and  larger  share  of  the  toy  business, 
becoming  far  bigger  than  Hasbro  and  Mattel  combined.  Of  the 
estimated  $11.4  billion  spent  on  toys  in  1989,  23  percent  was  spent 
on  Nintendo  products.  Of  the  thirty  top-selling  toys  in  America, 
twenty-five  were  Nintendo  or  Nintendo-related.  NOA  held  every 
spot  in  the  top  ten— and  this  was  during  the  greatest  shortage  of 
Nintendo  products. 

Arakawa  couldn't  fill  orders.  Before  Christmas  1989,  Peter  Main 
was  threatened  with  bodily  harm  and  lawsuits  by  company  manag- 
ers and  presidents  who  blamed  him  for  single-handedly  destroying 
their  business.  The  only  stores  that  had  Nintendo  products  at 
Christmas  that  year  were  retailers  that  had  sufficient  cash  reserves 
to  allow  them  to  begin  hording  systems  and  games  that  summer. 
Toys  "R"  Us  and  a  few  other  chains  had  invested  heavily  in  Nin- 
tendo products  for  that  Christmas  and  had  a  reasonable  supply. 
Most  companies,  however,  blamed  Nintendo  when  their  businesses 
plummeted.  In  one  pre-Christmas  month  in  1989,  toy-company 
stocks  tumbled  42  percent,  Fortune  reported.  Financial  World  said, 
"Nintendo  ...  is  once  again  sticking  out  its  tongue  at  the  rest  of 
the  U.S.  toy  industry." 

The  toy  industry  hated  the  fact  that  Nintendo  didn't  play  by  its 
rules:  it  didn't  use  December  10  billing;  it  didn't  belong  to  any  toy 
manufacturers'  associations;  it  didn't  bother  showing  its  products 
at  most  toy-industry  trade  shows.  Charges  began  to  surface  that  it 
was  cutting  into  the  toy  industry,  taking  over  the  toy  industry, 
manipulating  it  by  illegally  fixing  prices  and  intimidating  retailers, 
threatening  to  cut  off  their  product  supply  if  they  carried  competi- 
tors' products  or  dared  to  discount  Nintendo  machines  and  games. 

Arakawa  and  Peter  Main  became  the  target  of  complaints — first 
from  Nintendo's  competitors,  then  from  retailers,  and  eventually 
from  members  of  Congress.  Although  Peter  Main  was  named  1989 
Marketer  of  the  Year  by  Adweek  magazine,  a  profile  in  The  New 
York  Times  had  this  to  say  of  him:  "To  his  admirers  ...  he  is  a 
master  seller  of  children's  entertainment.  ...  To  his  critics  he  is 
an  aspiring  monopolist,  squeezing  supply  and  jacking  up  profits." 


GAME    OVER 


Since  the  toy  companies  couldn't  beat  NOA,  they  tried  to  cash  in 
on  the  Nintendo  craze.  Five  major  companies  got  licenses  from 
Nintendo  to  release  character-related  toys  such  as  Mario  and 
Zelda  board  games  and  action  figures.  Mostly,  however,  other 
companies  hoped  that  Nintendo's  invasion  of  their  territory  was 
temporary.  They  prayed  for  (and  in  many  cases,  expected)  Nin- 
tendo to  go  the  way  of  Atari  as  they  bided  their  time  with  old 
standbys:  Slinky,  Mr.  Potato  Head,  Lincoln  Logs,  Barbie.  But  by 
1991,  Nintendo  had  become  so  well  entrenched  that  the  toy  indus- 
try realized  it  wasn't  about  to  disappear.  Hasbro's  chief  acknowl- 
edged the  troubles  the  country's  economic  recession  had  brought 
to  his  industry,  but  complained  that  "the  toy  industry  has  been 
much  more  impacted  by  Nintendo." 

By  1991,  Toys  "R"  Us,  which  had  a  22  percent  market  share  of 
the  toy  business  with  its  450  stores  (plus  100  more  abroad),  had 
sales  of  $5  billion,  and  Nintendo  products  represented  almost  one 
fifth  of  its  total  sales.  Discounters  became  Toys  "R"  Us's  biggest 
competitors  (Child  World  and  Lionel  Kiddie  City  shared  7  percent 
of  the  toy  market).  Kmart  and  Wal-Mart  controlled  up  to  10  per- 
cent each.  The  largest,  Wal-Mart,  didn't  even  carry  Nintendo's 
competitors.  Although  Wal-Mart  had  no  World  of  Nintendo  in  its 
stores,  Kmart,  which  had  held  out  for  years,  agreed  in  1991  to  open 
five  hundred  of  the  stores-within-a-store. 

The  toy  industry  had  been  hurt  by  the  recession  as  well  as  deep 
discounting  of  toys  in  pre-Christmas  sales.  Child  World  was  on  the 
brink  of  collapse  (it  finally  went  into  Chapter  11  in  1992).  The 
industry  did  better  in  1992,  but  Nintendo  still  accounted  for  seven 
of  the  top  ten  toys  of  the  year.  It  was,  once  more,  the  Grinch  who 
stole  Christmas. 

Whether  or  not  Nintendo  actually  absconded  with  the  toy  busi- 
ness, many  people  see  the  company  as  an  evil  force  because  it 
deals  in  video  games,  hypnotizers  of  youth.  Since  video  games  first 
appeared,  they,  like  pool  tables  and  pinball  machines,  have  been 
viewed  as  contributors  to  juvenile  delinquency.  Nintendo  is  consid- 
ered guilty  by  association. 

The  more  Nintendo  became  a  force  in  the  lives  of  millions  of 
kids,  the  more  concerned  parents  and  educators  became.  The  wor- 


THE    GRINCH    WHO    STOLE    CHRISTMAS  205 

ries  were  exacerbated  by  the  degree  of  devotion  kids  seemed  to 
have  for  the  games  and  for  Nintendo's  culture.  It  was  as  if  Amer- 
ica's kids  had  joined  a  cult  and  were  under  the  spell  of  a  cartoon 
character  who  did  the  bidding  of  a  hidden  Japanese  lord.  "Notice 
the  way  'Super  Mario'  is  drawn,"  a  worried  parent  wrote  in  a  letter 
to  a  magazine.  "He  has  the  eyes  of  someone  who  has  been  brain- 
washed." 

Fads  had  come  and  gone  before,  but  this  was  different.  Kids 
played  video  games,  conspired  with  one  another  about  game  strat- 
egy, drew  pictures  of  video-game  characters,  and  for  their  home- 
work wrote  video-game  adventures.  While  kids  also  loved  The 
Simpsons,  In  Living  Color,  and  MTV,  the  intensity  with  which  they 
played  video  games  was  noticeably  different  from  that  of  the  atten- 
tion they  paid  to  television.  Hospital  staff  saw  how  dramatically 
different  Nintendo  playing  was  from  TV  watching.  Some  seriously 
ill  children  in  a  hospital  who  played  Nintendo  required  half  as 
much  pain  medication  as  those  who  didn't.  Television  had  no  effect 
on  the  amount  of  medication  required. 

According  to  doctors,  playing  Nintendo  games  has  the  power  to 
alleviate  pain  for  two  reasons.  First,  the  intensive  interaction  with 
video  games  requires  a  degree  of  concentration  that  acts  as  a 
diversion  and  distraction  from  pain — and  everything  else.  Sec- 
ondly, the  highly  excited  state  achieved  during  this  interaction  gen- 
erates a  steady  flow  of  endorphins  into  the  bloodstream. 
Endorphins  are  the  naturally  occurring  proteins  that  mask  pain 
and  cause  a  sense  of  euphoria.  Nintendo  playing  can  cause  a  sort 
of  high,  but  so  can  jogging. 

Parents,  educators,  and  psychologists  are  concerned  that  Nin- 
tendo may  be  worse  than  television  because  of  the  relentless  and 
hypnotic  attention  that  is  required.  Some  kids  who  play  for  long 
intervals  complain  of  headaches  and  blurry  vision.  Some  are  diag- 
nosed with  "Nintendinitis,"  severe  muscle  cramps  in  their  game- 
playing  thumbs.  Experts  worry  that  Nintendo  may  train  kids  to  be 
aggressive  and  inure  them  to  high  degrees  of  violence.  Others 
simply  feel  that  any  excuse  to  be  in  front  of  the  television  encour- 
ages antisocial  behavior. 

Parents  and  teachers  have  noticed  that  kids  who  play  a  lot  of 
Nintendo  have  increased  levels  of  both  determination,  on  the  one 


20B  GAME    OVER 


hand,  and  of  frustration,  on  the  other.  Some  kids  are  out-of- 
control  "Nintendo  zombies,"  as  Oprah  Winfrey  dubbed  them  on 
her  television  talk  show.  There  were  worries  that  video-game  play- 
ing could  be  damaging  to  kids'  cognitive  and  social  development. 
Parents  on  Oprah  complained  that  their  kids  played  Nintendo 
games  every  free  hour  of  the  day.  One  guest  on  the  show  was  an 
eleven-year-old  boy  who  admitted  that  he  was  an  addict  who 
played  twelve  hours  a  day,  before  school  and  afterward  until  bed- 
time. Why  his  parents  allowed  him  to  play  so  much  was  another 
question,  but  the  example  wasn't  unique;  left  to  their  own  devices, 
kids  play  compulsively. 

Nintendo  weakly  answered  this  litany  of  concern  with  hollow- 
sounding  arguments  that  claimed  playing  video  games  can  actually 
be  beneficial.  It  increases  hand-eye  coordination  and  response 
time.  Unsolicited  independent  confirmation  proved  how  much:  the 
U.S.  military  found  that  recruits  who  had  played  a  lot  of  Nintendo 
did  disproportionately  well  in  flight-training  programs. 

The  problem  with  Nintendo's  retort  was  that  there  were  many 
other  ways  for  young  people  to  improve  hand-eye  coordination — 
by  building  with  blocks  or  playing  catch,  for  instance.  And  how 
much  hand-eye  coordination  does  anyone  (besides  future  fighter 
pilots)  really  need,  anyway?  The  company's  arguments  did  little  to 
stem  the  growing  concern  about  a  generation  of  "vidiots,"  hypno- 
tized kids  who  blindly  follow  a  pied  piper  in  the  form  of  Super 
Mario. 

junior  an  addict?  a  USA  Today  headline  read.  The  answer,  ac- 
cording to  the  article,  was:  not  to  worry.  An  expert  from  Pomona 
College,  Brian  Stoneholl,  was  quoted:  "These  games  provide  chil- 
dren with  a  strong  sense  of  dramatic  victory  without  the  slightest 
bit  of  physical  danger.  People  who  play  will  simply  keep  at  it  until  it 
loses  its  appeal."  A  mother  said,  "I'm  scared  to  death  of  computers 
and  [my  kids]  won't  be.  Sure,  part  of  me  wishes  they'd  be  like  my 
generation,  happy  simply  swinging  or  jumping  rope.  But  they're 
not  .  .  .  [and]  at  least  they're  not  watching  lots  of  TV." 

Many  researchers  believe  that  Nintendo  is  superior  to  television 
because  it  is  interactive.  Television  is  a  one-way  medium,  with 
viewers  passively  devouring  the  programming  and  relatively  little 


THE    GRINCH    WHO    STOLE    CHRISTMAS  207 

brain  activity  occurring.  Video  games,  on  the  other  hand,  stimulate 
keen  responsiveness.  Many  professionals  feel  that  as  a  result  Nin- 
tendo is  far  healthier. 

In  addition  to  the  active  involvement  demanded  by  Nintendo 
games,  some  experts  feel  that  the  games  also  require  useful  kinds 
of  thinking.  Video  games,  they  claim,  help  develop  problem- 
solving  abilities,  pattern  recognition,  resource  management,  logis- 
tics, mapping,  memory,  quick  thinking,  and  reasoned  judgments. 
"Knowing  when  to  fight  and  when  to  run  applies  to  other  life 
situations,"  says  a  game  maker.  The  lessons  learned  during  video- 
game sessions  can,  he  argues,  be  used  in  everyday  life. 

Video-game  violence  is  far  less  harmful  than  television  violence, 
some  professionals  maintain,  because  the  blood  and  gore  in  video 
games  is  less  realistic.  Even  though  game  designers  seem  to  spend 
inordinate  amounts  of  time  and  energy  dreaming  up  bizarre  ways 
to  kill  and  maim,  for  the  most  part  the  violence  is  the  stuff  of 
science  fiction  and  fantasy.  The  concern  that  the  games  anesthetize 
kids  to  real  violence  and  increase  their  aggression  is  debated  by 
some  psychologists  who  feel  the  opposite  is  true — that  the  games 
actually  release  aggression,  and  that  all  the  beating  up  of  video- 
game villains  is  cathartic.  According  to  one  San  Francisco  child 
psychologist,  video  games  build  self-esteem:  "You  accomplish 
something,  you  are  rewarded.  You  may  even  save  the  princess." 

Howard  Phillips  notes  that  video  games  help  build  kids'  confi- 
dence by  rewarding  them  for  success  and  resilience.  "The  number 
of  times  in  school  a  teacher  asks  any  one  child  for  an  answer  is 
pretty  limited,"  he  says.  "Most  of  the  time  kids  raise  their  hands 
and  respond  and  get  back  a  quick  'Right'  or  'Wrong.'  If  they're 
wrong,  they've  lost  their  chance  and  someone  else  is  called  on.  But 
with  video  games,  if  a  child  makes  a  mistake — bang,  he's  immedi- 
ately back  into  it,  trying  again.  They  have  constant,  immediate 
negative  and  positive  feedback." 

In  her  book  The  Second  Self,  Sherry  TUrkle  writes  that  video 
games  have  hidden  benefits.  "You  have  to  follow  rules  and  be 
logical  and  patient,"  she  says.  "Working  out  your  game  strategy 
involves  a  process  of  deciphering  the  logic  of  the  game,  of  under- 
standing the  intent  of  the  game's  designer,  of  achieving  a  meeting 


GAME    OVER 


of  the  minds  with  the  program."  But  the  program  came  from  the 
designer,  not  from  the  individual  child.  The  creative  choices  in  the 
current  generation  of  Nintendo  games  are  few. 

Peggy  Charren,  the  founder  of  Action  for  Children's  Television 
(ACT),  a  watchdog  organization  that  looks  at  the  effects  of  televi- 
sion on  children,  examined  Nintendo  and  came  away  with  mixed 
conclusions.  Yes,  video  games  helped  make  kids  comfortable  with 
computers  and  machines,  but  since  most  games  were  geared  spe- 
cifically to  boys,  girls  were  excluded  from  that  education.  She  was 
also  concerned  about  the  sexism  and  violence  of  many  games.  She 
concluded  that  although  video  games  had  some  benefits  that  tele- 
vision couldn't  offer,  they  were  a  passion  that  shouldn't  be  in- 
dulged to  the  exclusion  of  other  activities.  "Too  much  video-game 
playing  is  a  problem  not  because  of  what  you  are  doing  but  be- 
cause of  what  you  are  not  doing,"  she  said.  Even  Hiroshi  Yamauchi 
seems  to  agree  with  her:  "I  mean,  too  much  eating  is  bad,  too.  This 
is  the  age  of  the  computer.  No  one  can  stop  history — kids  are 
interested  in  playing  computers."  Howard  Phillips  is  more  defen- 
sive in  the  face  of  parents  who  charge  that  Nintendo  is  addictive. 
"Nintendo  is  not  responsible  for  raising  your  children,"  he  says. 
"Parents  who  blame  Nintendo  are  passing  the  buck." 

When  Sigeru  Miyamoto,  the  creator  of  Mario,  Luigi,  and  Zelda, 
heard  the  complaints  about  video  games,  he  simply  shrugged  his 
shoulders.  "Video  games  are  bad  for  you?  That's  what  they  said 
about  rock  'n'  roll." 

Arguments  that  justify  video-game  playing  are  unconvincing  to 
many  people.  Nintendo  could  have  done  better  at  offering  games 
with  socially  redeeming  subject  matter  and  games  that  educated.  If 
kids  are  going  to  spend  all  that  time  playing  Nintendo,  their  par- 
ents would  feel  better  if  they  were  learning  something  concrete 
and  valuable. 

Nolan  Bushnell  believes  it  is  incumbent  on  the  game  companies 
to  offer  more.  Video  games,  he  says,  could  be  one  answer  to  Amer- 
ica's education  crisis.  "Let's  assume  that  1  percent  of  the  teachers 
in  this  country  are  absolutely  fantastic,"  he  says.  "That  means  that 
only  1  percent  of  the  students  are  able  to  take  advantage  of  those 
excellent  teachers.  Teaching  is  the  only  environment  in  which  that 


THE    grinCH    WHO    STOLE    CHRISTMAS  209 


is  true.  Everybody  gets  to  benefit  from  the  top  1  percent  of  the 
people  in  sports  and  in  entertainment,  but  most  kids  go  through 
school  with  no  contact  with  the  great  teachers.  And  of  course, 
great  teachers  aren't  often  able  to  do  much  teaching,  since  they  are 
put  in  situations  that  are  not  conducive  to  education.  Technology  is 
the  only  thing  that  can  change  that.  Put  those  great  teachers  on  a 
cartridge,  pop  it  into  a  game  system,  and  kids  everywhere  will  have 
access  to  them.  Programs  can  react  to  the  way  a  child  learns.  If  a 
child  shows  himself  to  be  an  object-oriented,  visual  learner,  the 
system  can  detect  that  and  continue  to  teach  him  in  that  way." 

There  is  another  bonus  to  video-game  machines:  the  message 
comes  via  a  medium  that  kids  enjoy.  Computer-game  companies 
such  as  The  Learning  Company,  Broderbund,  and  LucasArts  have 
made  fun  games  that  are  also  educational.  Inherent  in  the  games 
are  geography  lessons,  math,  science,  and  reading.  Kids  who  have 
access  to  computers  can  play  them,  but  there  are  almost  no  educa- 
tional Nintendo  games.  The  reason,  as  a  software-company  execu- 
tive noted,  is  that  "kids  like  them  like  spinach." 

Nevertheless,  Nintendo  has  seen  the  public-relations  value  of 
creating  educational  uses  for  the  NES.  If  nothing  else,  it  would 
appease  parents,  who  control  the  pursestrings.  "The  view  was  that 
Nintendo  must  be  bad;  only  cancer  grows  that  fast,"  observes  Peter 
Main.  "We  were  less  well  prepared  than  we  should  have  been  in 
that  period  because  we  hadn't  really  devoted  the  time  to  providing 
the  offsetting  evidence.  Beyond  arguments  about  hand-eye  coordi- 
nation, we  stumbled  through  that  period  and  looked  a  little  more 
naive  than  we  would  have  liked." 

Since  then  Nintendo  has  tried  several  things.  First,  it  has  encour- 
aged software  developers  to  make  games  of  socially  redeeming 
value.  "Sesame  Street  Learning  Games"  and  "Donkey  Kong  Math" 
are  examples.  (They  are  also  examples  of  why  companies  don't 
make  educational  games;  they  were  dismal  failures.)  One  more 
exciting  product  was  released  by  a  software  company,  Software 
Toolworks,  in  1990.  Dubbed  the  Miracle,  this  piano-teaching  sys- 
tem is  an  electronic  keyboard  that  plugs  into  the  NES.  The  car- 
tridge that  comes  with  it  is  filled  with  piano  lessons.  A  child, 
following  on-screen  lessons,  will  practice  on  the  Miracle.  The  pro- 
gram can  monitor  the  lesson  and  point  out  mistakes. 


GAME    OVER 


The  Miracle  is  one  answer  to  critics  who  say  Nintendo  has  no 
higher  purposes  than  blasting  enemies  and  wasting  kids'  time. 
NOA's  evaluators  awarded  the  Miracle  the  highest  rating  ever 
given  to  a  product  developed  outside  the  company,  although  it  has 
sold  only  marginally  well  in  spite  of  a  $6  million  ad  campaign  for 
Christmas  1991.  By  then  the  Software  Toolworks  designers  had 
completed  versions  that  work  with  IBM,  Amiga,  and  Macintosh 
PCs,  and  sales  picked  up  through  the  next  year. 

More  "educational,"  or  at  least  creative,  games  were  released 
beginning  in  1992.  Spectrum  Holobyte's  addictive  "Wordtris"  and 
a  terrific  animation  program,  Nintendo's  own  "Mario  Paint,"  indi- 
cated that  things  might  get  better. 

Besides  trying  to  push  select  educational  software  and  hardware, 
Nintendo  has  tried  to  win  over  its  critics  with  good  PR.  Nintendo 
in  Japan  had  been  criticized  for  contributing  little  to  the  commu- 
nity, but  Arakawa  understands  the  value  of  community  and  social 
involvement.  In  1987,  NOA  was  contacted  by  a  young  girl  who  had 
been  an  enthusiastic  Nintendo  player  until  she  was  in  an  automo- 
bile accident  that  left  her  paralyzed  from  the  neck  down.  The 
company  responded  by  developing  a  system  that  could  be  used  by 
handicapped  players  and  sold  some  two  thousand  of  them  at  cost 
($175). 

Andrea  Miano,  a  therapist  who  works  with  handicapped  chil- 
dren at  Shriner's  Hospital  in  San  Francisco,  says  the  Nintendo 
Hands  Free  system  "enables  kids  to  play  games  other  kids  are 
playing;  it  builds  a  great  deal  of  self-esteem.  It's  not  simply  diver- 
sionary recreation  but  therapeutic  recreation.  For  a  child  who  has 
very  little  ability  to  move  at  all— to  do  anything— to  be  able  to  do 
well  in  a  game  like  this— it's  fairly  extraordinary  what  it  does  for 
them." 

Nintendo  has  also  tried  to  alleviate  some  criticism  by  supporting 
research  into  ways  that  video  games  can  be  better  teachers.  In 
1991,  Hiroshi  Yamauchi  awarded  $3  million  to  MIT's  world- 
renowned  Media  Lab,  specifically  for  research  on  how  children 
learn  while  they  play.  The  Lab  was  working  on  high-tech  learning 
tools  that,  according  to  Dr.  Seymour  Papert,  "look  and  feel  more 
like  Nintendo  games  than  schoolbooks." 

It  was  considered  unlikely  by  some  that  the  Lab  would  come  up 


THE    GRINCH    WHO    STOLE    CHRISTMAS  21   1 


with  any  negative  conclusions  about  video-game  playing  as  long  as 
Nintendo  was  its  benefactor.  It  was  a  misguided  criticism,  however; 
MIT  was  not  researching  the  effects  of  video  games,  but  of  new 
fields  such  as  "constructivism,"  based  on  the  Piagetian  thesis  that 
knowledge  is  built  by  the  learner,  not  supplied  by  the  teacher.  It 
may  well  be  that  Nintendo  games  of  the  future  will  apply  this 
principle— build  knowledge  by  creating— and  still  be  as  much  fun 
as  the  current  generation  of  games.  Marshall  McLuhan  once  said 
that  anyone  who  tries  to  make  a  distinction  between  entertainment 
and  education  doesn't  know  the  first  thing  about  either.  There  is 
no  reason  why  Nintendo's  popularity  with  kids  cannot  be  exploited 
for  higher  ends. 

In  a  New  York  Times  piece  on  education,  Morgan  Newman, 
cofounder  of  a  multimedia  publishing  company,  AND  Communi- 
cations, was  quoted  as  saying,  "We  think  that  quite  probably  what's 
going  on  with  the  crisis  in  education  out  there  is  that  kids  are  often 
just  bored.  They're  going  home  in  the  afternoon  and  watching 
MTV  and  then  they  go  to  school  and  the  teacher  says,  'Open  the 
book  to  page  225,'  and  their  eyes  just  glaze  over.  .  .  .  We're  em- 
bracing instead  of  denouncing  the  language  that  human  beings  in 
the  1990s  want  to  hear  to  keep  them  engaged."  Nintendo  was  one 
of  the  "languages"  he  spoke  of. 

In  a  search  for  NES  software  that  had  the  insidious  secret 
agenda  of  education,  groups  have  been  formed  around  the  coun- 
try. Dave  Hammond,  who  spearheaded  one  effort,  says,  "If  we 
don't  produce  more  young  people  who  know  how  to  think  and 
problem-solve  we  aren't  going  to  be  able  to  compete  in  the  global 
economy.  We  need  a  way  of  attracting  kids  in  in  the  after  hours. 
More  than  40  million  kids  play  Nintendo.  A  system  is  in  place.  The 
games  we're  working  on  will  be  fun  and  educational.  We  plan  to 
stage  a  Super  Bowl  of  Nintendo  on  these  games,  an  Olympics. 
There  will  be  rewards— money  and  TV  commercials.  Kids  at  home 
will  watch  and  say,  T  can  do  that.'  We  want  it  to  be  as  attractive  to 
them  as  football  and  wrestling." 

Nintendo  has  supported  some  outside  projects  and  has  initiated 
others.  It  underwrote  a  first-ever  symposium  on  "Video  Games  in 
Popular  Culture,"  a  forum  for  researchers  and  academics  to  dis- 
cuss the  impact  video  games  have  on  their  players  and  on  the 


212  GAME    OVER 


culture  as  a  whole.  The  conference's  organizer,  Bowling  Green 
University  popular-culture  professor  Dr.  Christopher  Geist,  said, 
"I  don't  believe  anyone  ever  expected  video  games  to  have  such  a 
fundamental  effect  on  our  society  in  so  many  areas.  [They]  have 
become  an  integral  part  of  the  fabric  of  American  life,  changing 
the  way  we  think,  the  way  we  learn,  and  the  way  we  see  the  future." 

Nintendo  has  also  teamed  up  with  Junior  Scholastic  magazine, 
which  held  a  contest  that  had  students  designing  the  "ultimate" 
video  game.  Schoolkids  in  classrooms  around  the  nation  wrote 
their  ideas  up  in  essays.  Nintendo  awarded  students  with  college 
grants  and  scholarships  for  the  best  ones.  Teachers  were  impressed 
that  kids  who  previously  had  been  reluctant  to  write  at  all  were 
now  turning  in  fifteen-to-thirty-page  entries.  The  students  dis- 
cussed their  work  with  the  kind  of  enthusiasm  that  teachers  had 
not  seen  on  any  other  subject. 

People  who  complain  that  Nintendo-obsessed  children  are  miss- 
ing out  on  social  skills  don't  understand  the  Nintendo  cult.  The 
exclusive  club  is  a  social  network  for  millions  of  kids.  To  get  in,  you 
don't  need  to  be  a  star  athlete  or  the  coolest  or  most  popular  kid  in 
class.  All  you  needed  is  a  Nintendo  system,  or  access  to  one  (at  a 
friend's,  a  clubhouse,  or  at  school).  Grown-ups  may  not  under- 
stand it  (or  may  feel  excluded),  but  a  Nintendo  generation  is 
emerging.  "In  the  future  we  will  be  living,  in  part,  in  virtual  real- 
ity," Nolan  Bushnell  says.  "To  survive  and  make  it  in  that  dimen- 
sion, we  are  going  to  have  to  be  mentally  awake.  We  are  going  to 
have  to  learn  how  to  live  and  be  comfortable  and  maneuver  in  a 
computer  environment.  These  kids  are  in  training." 


^\  ID 

GAME  MASTERS  ^\ 


For  all  its  lofty  high-tech  pretensions,  the  video-game  industry  is  a 
razor-and-razor-blade  business.  Just  as  Gillette  wants  consumers 
to  buy  their  Atra  shaver  so  they  will  then  buy  lots  of  Gillette  Atra 
blades,  video-game  makers  want  consumers  to  buy  their  hardware 
so  they  will  buy  lots  of  their  software.  A  consumer  in  America  who 
invested  in  a  Nintendo  system  ended  up  buying,  on  average,  seven 
game  cartridges  (compared  to  an  average  of  twelve  in  Japan).  The 
average  price  of  a  cartridge  was  about  $40.  Software  accounted  for 
more  than  half  of  Nintendo's  profits  after  1989. 

The  first  software  available  for  the  Nintendo  system  in  America 
was  made  by  Nintendo  itself,  but  Arakawa  knew  from  the  begin- 
ning that  a  wider  variety  of  games  than  Nintendo  could  produce 
would  be  needed.  It  was  no  different  from  the  computer  business, 
where  it  was  almost  always  understood  that  the  more  companies 
developing  software  for  a  hardware  platform,  the  better.  A  Texas 
Instruments  machine  with  closed  architecture — that  is,  which  ran 


214  GAME    OVER 


only  TI  software— failed  miserably.  When  the  Macintosh  was  in- 
troduced, it  sold  poorly  until  outside  software  developers  released 
an  array  of  applications.  The  Famicom  also  did  better  as  more 
games  became  available.  Many  of  these  games,  including  some  of 
the  bestsellers,  were  made  by  third-party  licensees— by  Namco, 
Capcom,  Data  East,  and  others.  Those  games,  in  turn,  helped  sell 
more  hardware,  which  created  the  demand  for  more  software. 
Also,  American  companies  could  be  expected  to  bring  in  new  kinds 
of  games,  ones  particular  to  the  sensibilities  of  American  players. 

From  the  outset  Arakawa  planned  on  initiating  a  licensing 
agreement  based  on  the  one  developed  by  NCL.  In  the  United 
States,  as  in  Japan,  Nintendo  would  make  money  on  all  the  games 
sold  no  matter  who  developed  and  marketed  them,  but  Yamauchi 
had  encountered  problems  that  Arakawa  wanted  to  avoid.  In  Ja- 
pan, in  spite  of  NCL's  controls,  the  overall  Nintendo  business  was 
hurt  by  a  glut  of  games,  many  of  them  of  inferior  quality.  Arakawa 
wanted  a  licensing  agreement  that  would  prevent  this  from  hap- 
pening in  America.  The  built-in  lock-out  chip,  Yamauchi  admitted, 
was  to  censor  games  as  well  as  to  stop  counterfeiters.  He  says,  "It 
was  our  way  of  assuring  consistent  product  quality  and  to  keep  the 
taste  level  high— no  dirty  games,  no  games  with  bugs  or  bad  de- 
sign." It  also  protected  Nintendo's  profit  from  every  game  sold 
that  played  on  the  NES— an  estimated  700  yen,  or  $5  per  game 
developed  by  other  companies.  Had  Gillette  been  able  to  come  up 
with  a  patented,  copyrighted  system  to  lock  out  non-Gillette-made 
razor  blades  that  fit  the  Atra,  it  too  could  have  made  money  on 
blades  made  by  competitors. 

In  addition  to  the  security  system,  Arakawa  wanted  a  contract 
similar  to  NCL's  to  control  the  licensees.  He  and  Howard  Lincoln 
finally  concocted  one  with  restrictions  so  severe  that  even  Lincoln 
anticipated  problems.  To  assuage  his  fears— and  to  cover  Nintendo 
—he  had  NOA's  outside  attorney,  John  Kirby  of  Mudge,  Rose, 
research  precedents  to  determine  if  they  could  get  away  with  it. 
Kirby  gave  Nintendo  the  go-ahead. 

For  the  "privilege"  of  being  allowed  to  make  games  for  Nin- 
tendo's machine,  developers  had  to  grant  Nintendo  the  approval  of 
the  games,  packaging,  artwork,  and  commercials.  These  terms— 
which,  in  spite  of  Mudge,  Rose's  verdict,  would  eventually  be  chal- 


GAME    MASTERS 


lenged  in  court  and  questioned  by  the  Federal  Ttade  Commission 
— gave  Nintendo  the  right  to  reject  games,  or  portions  of  them. 
For  instance,  NOA  could  censor  such  games  as  "Custer's  Re- 
venge," which  included  nude  Indian  maidens  tied  to  stakes,  or  a 
game  that  had,  as  targets,  dancing  babies  that  melted  into  quiver- 
ing, bloody  blobs  when  hit  by  a  bullet. 

The  plan  had  Nintendo  evaluating  every  game  and  giving  it  a 
rating  on  the  forty-point  scale.  Licensees  then  would  place  an  or- 
der for  at  least  10,000  cartridges.  The  finished  cartridges,  manufac- 
tured by  NCL  in  Kyoto,  would  be  sold  back  to  the  developers. 
Depending  on  the  memory  capacity  required,  Nintendo  charged 
$9  to  $14  per  cartridge.  The  agreement  stated  that  the  price  "in- 
cludes both  the  cost  of  manufacturing,  printing,  and  packaging  the 
[games]  and  royalty  for  the  use  of  [Nintendo's]  licensed  intellec- 
tual properties."  Licensees  ended  up  taking  on  all  inventory,  distri- 
bution, and  sales  responsibilities — and  all  the  risks. 

This  was  all  fairly  standard,  based  on  the  earlier  NCL  agree- 
ment, but  Arakawa  and  Lincoln  added  more.  An  "exclusivity 
clause"  was  designed,  whose  purpose,  they  insisted,  was  to  further 
encourage  developers  to  make  good  games.  Licensees  could  only 
make  up  to  five  Nintendo  games  a  year  and  they  could  not  release 
them  to  play  on  any  other  video-game  system  for  two  years  from 
the  time  they  were  introduced.  The  games  couldn't  be  sold  outside 
the  United  States  and  Canada.  "If  they  could  only  make  it  for  the 
NES  and  only  make  a  limited  number  of  games,  then  it  might  dawn 
on  them  that  they  had  better  make  a  good  game,"  Howard  Lincoln 
says.  "They  couldn't  afford  to  make  many  mistakes  because  they 
only  had  five  shots  a  year." 

Lincoln,  a  master  at  licensing  agreements  since  his  Coleco- 
"Donkey  Kong"  coup,  ironed  out  the  wrinkles.  It  was  as  airtight 
and  restrictive  as  anything  ever  seen  in  the  industry,  but  Arakawa 
insisted  that  there  was  still  room  for  huge  profits  for  everyone. 
Licensees  could  sell  the  games  to  dealers  for  more  than  twice  the 
price  they  paid  for  them.  (Dealers  would  double  the  price  again 
and  sell  them  for  between  $30  and  $55.) 

Arakawa  offered  licensees  access  to  Nintendo's  marketing,  de- 
velopment, and  customer  services:  promotion  in  the  Fun  Club 
newsletter  (and,  later,  in  Nintendo  Power),  development  advice 


2  1  B  GAME    OVER 


from  the  game  evaluators,  and  consumer  service  through  the  Nin- 
tendo game  counselors.  Approved  games  would  have  the  Nintendo 
quality  seal  and  could  therefore  be  sold  as  part  of  Nintendo  dis- 
plays in  retail  outlets.  Licensees  could  also  show  their  wares  in  the 
Nintendo  booth  at  the  most  important  industry  trade  shows.  At  the 
January  1991  show,  Nintendo  and  its  licensees  occupied  the  most 
exciting  CES  exhibit  anyone  in  the  industry  had  ever  seen;  it  filled 
a  tent  big  enough  for  a  three-ring  circus. 

In  1985,  however,  no  companies  jumped  at  NOA's  offer.  Soft- 
ware companies  that  survived  the  Atari  debacle  felt  as  burned  by 
home-video  games  as  retailers  did.  They  believed  that  the  video- 
game business  had  shifted — for  good — to  computers.  Computer 
games  were  safer  to  gamble  on,  too,  since  they  were  so  much 
cheaper  to  manufacture.  Publishing  games  on  floppy  disks  cost 
nothing  compared  to  the  astronomical  costs  of  cartridges,  which 
required  expensive  computer  chips.  Marketing  computer  games 
also  required  less  since  the  target  audience  was  more  defined. 

It  took  half  a  year  for  the  first  licensees  to  sign  up.  They  were 
American  subsidiaries  of  Japanese  companies  that,  for  the  most 
part,  imported  video-arcade  games.  In  many  cases,  they  had  been 
instructed  by  their  parent  companies  to  work  with  Nintendo;  many 
of  them  had  already  dealt  with  NCL  in  Japan. 

These  companies  cautiously  signed  the  agreements  and  set 
about  developing  home  versions  of  their  arcade  games.  They 
placed  conservative  orders  of  ten  or  twenty  thousand  cartridges 
and  received  their  first  shipments  at  the  end  of  1986.  Everything 
sold. 

One  of  these  companies,  Data  East,  was  run  by  Bob  Lloyd,  a 
former  professional  basketball  player.  Data  East  was  a  successful 
arcade  game  company  when  Minoru  Arakawa  called  Lloyd  to  ask 
if  he  was  interested  in  becoming  a  Nintendo  licensee.  Lloyd  con- 
sidered it,  since  he  had  seen  Nintendo's  sales  taking  off  through 
1985. 

Before  meeting  to  discuss  details,  NOA  sent  Lloyd  a  draft  of  the 
third-party  contract.  In  a  subsequent  meeting,  he  said  he  had  a 
problem  with  the  contract;  he  could  commit  to  buy  a  minimum  of 
10,000  units  of  a  game,  but  he  wanted  to  be  able  to  buy  smaller 
reorders. 


GAME    MASTERS  2  1  "7 

Howard  Lincoln  shook  his  head:  there  would  be  no  exceptions. 
Arakawa  later  teased  Lloyd  when  Data  East  was  placing  orders  for 
hundreds  of  thousands  of  games  at  a  time.  "It  was  a  license  to 
steal,"  Lloyd  says.  Data  East  and  all  the  early  licensees  sold  an 
average  of  75,000  copies  of  every  game  they  put  into  the  market. 
Kids  scooped  them  up  as  soon  as  they  hit  the  stores.  Soon  Data 
East  was  bringing  in  $100  million  a  year,  about  ten  times  its  total 
sales  at  the  time  Lloyd  joined  the  company. 

Capcom,  another  early  licensee,  became  a  $160  million  business, 
with  240  designers  and  programmers,  because  of  its  Nintendo 
games.  Capcom's  "Mega  Man"  series  was  a  huge  hit  in  America.  It 
also  made  a  lucrative  deal  with  Disney.  Games  such  as  "Mickey 
Mousecapades,"  "Chip  'N  Dale  Rescue  Rangers,"  and  "Duck 
Tales"  sold  millions  of  copies.  It  wasn't  always  easy  working  with 
Disney,  however:  the  Disney  people  had  to  approve  every  aspect  of 
games  based  on  their  characters.  Importantly,  Mickey  could  never 
die;  players  lost  "tries,"  not  "lives." 

Capcom  was  one  of  the  few  companies  kids  knew  by  name  (most 
kids  knew  only  Nintendo  games,  not  Data  East  or  Konami  names). 
Capcom  also  had  its  own  game-counselor  system,  based  on  Nin- 
tendo's model.  It  encouraged  kids  to  buy  Capcom  games  by  offer- 
ing rebates  for  multiple-game  purchases.  Fully  costumed  actors 
made  promotional  appearances  as  "Mega  Man"  in  stores.  Capcom 
also  publicized  its  donations  of  NES  and  software  to  children's 
hospitals  throughout  the  country. 

Konami  Industry  Company,  Ltd.,  of  Kobe,  Japan,  established  a 
U.S.  subsidiary  in  1982.  It  had  been  successful  in  the  coin-operated 
video-game  business  with  such  classics  as  "Frogger,"  "Super  Co- 
bra," and  "Scramble."  In  1986,  the  company  got  its  license  with 
Nintendo  of  America  and  released  its  first  game,  "Gradius,"  an 
arcade  hit,  in  February  1987.  It  was  a  big  seller.  The  first  Nintendo 
multiplayer  game,  "Rush  'N  Attack"  (guess  what  that  was  about) 
was  introduced  next.  Other  Konami  releases  included  "Top  Gun," 
based  on  the  movie  of  the  same  name,  which  sold  2  million  copies 
and  won  design  awards.  "Double  Dragon"  was  another  hit. 

In  1987,  Konami  convinced  Arakawa  to  break  the  rules  and 
allow  it  to  form  a  new  company,  Ultra,  in  order  to  get  a  second 
license;  it  could  then  release  five  more  NES  games  a  year.  One 


218  GAME    OVER 


Ultra  game  would  become  the  second-biggest  moneymaker  of  all 
time. 

A  comic  book  called  Teenage  Mutant  Ninja  Turtles— "heroes  on 
a  half  shell"— was  created  by  freelance  artists  Kevin  Eastman 
and  Peter  Laird  in  May  1984.  It  featured  four  turtles  named  Don- 
atello,  Raphael,  Michelangelo,  and  Leonardo  who  brandished 
"numchucks"  and  other  ninja  weapons.  According  to  the  story, 
they  had  been  real  teenage  turtles  until  a  radioactive  "mutigant" 
transformed  them.  As  Teenage  Mutant  Ninja  Turtles  they  said 
"dude"  and  "cowabunga"  a  lot  and  ate  pizza  whenever  they  could 
get  their  hands  on  it.  They  lived  in  the  sewers  under  New  York 
City. 

Eastman  and  Laird  borrowed  the  thousand  dollars  they  needed 
to  publish  their  black-and-white  comic  book.  They  founded  a  com- 
pany called  Mirage  Studios  (because  the  studio  existed  only  in 
their  minds)  and  traveled  to  a  comic-book  convention  to  hawk 
TMNT  number  1.  They  sold  175  copies. 

A  UPI  reporter  heard  about  Teenage  Mutant  Ninja  Turtles  and 
wrote  a  syndicated  story  that  helped  sell  another  3,000  comics. 
Amazed  that  they  had  made  a  profit  (of  $100),  Mirage  Studios 
released  TMNT  2,  which  included  an  ad  for  a  T-shirt  and  buttons. 
The  reaction  stunned  the  pair.  They  signed  a  licensing  deal  for 
more  Turtles  products,  and  by  the  end  of  1990  had  sold  $1  billion 
worth  of  TMNT  merchandise  in  thirty  countries. 

The  Tbrtles  was  one  of  the  most  successful  cross-licensing  cam- 
paigns in  history.  There  were  Turtle  movies,  comic  books,  live  rock 
'n'  roll  stage  shows,  toys,  a  breakfast  cereal,  and  individually 
wrapped  Hostess  pies  "straight  from  the  sewers  to  you,"  that  were 
filled  with  slimy  green  pudding.  The  TMNT  cartoon  show  was  the 
highest-rated  Saturday  morning  show  in  CBS's  history.  The  first 
TMNT  movie  made  $250  million. 

Ultra  snared  a  license  with  Mirage  to  make  Turtle  video  games. 
In  1989  and  1990,  the  first  two  years  on  the  market,  Ultra's  parent 
company,  Konami,  took  in  $125  million  from  the  first  "Teenage 
Mutant  Ninja  lUrtles"  game.  More  than  4  million  sold. 

There  were  various  sequels.  Konami  sent  a  memo  to  retailers  in 
early  1991:  "Cowabunga!  Check  out  what's  ahead  with  your  favor- 


GAME    MASTERS 


ite  reptilian  moneymakers  in  March  .  .  ."  The  list  included  the 
release  of  the  movie  Teenage  Mutant  Ninja  Turtles  2:  The  Secret  of 
the  Ooze,  in  2,500  theaters,  a  Ninja  TUrtle  interview  with  Barbara 
Walters  on  Oscar  night,  a  soundtrack  album  featuring  Vanilla  Ice, 
ads  for  the  movie  on  television,  radio,  and  in  magazines  (over  $60 
million  was  spent  on  advertising  and  promotion),  and  a  tie-in  for  a 
free  pizza  with  the  purchase  of  the  "TMNT  2"  NES  game. 

With  the  help  of  the  Ninja  Turtles,  Konami,  which  had  earned 
almost  $10  million  in  1987,  took  in  $300  million  in  1991.  It  became 
the  largest  of  the  NES  licensees,  the  eighth-largest  software  pub- 
lisher (Microsoft  was  number  one),  and  the  ninth-largest  toy  com- 
pany in  the  United  States — almost  all  based  on  the  TUrtles,  who 
also  starred  in  hugely  grossing  arcade  games.  (One  coin-operated 
TMNT  game  in  a  good  location  could  bring  in  $1,000  a  week  at  the 
peak  of  the  craze.)  Laird  and  Eastman's  Mirage  Studios  became 
very  real,  earning  $10  million  a  year. 

In  the  spring  of  1987,  Howard  Lincoln  was  contacted  by  the  first 
American  companies  that  were  interested  in  Nintendo's  licensing 
program.  The  first  American  licensee  was  formed  specifically  for 
the  purpose  by  Greg  Fischbach  and  Jim  Scoroposki,  veterans  of 
the  Atari  video-game  boom.  The  two  men,  who  knew  each  other 
from  when  they  worked  at  a  games  company  called  Activision,  had 
laughed  at  Nintendo  a  few  years  earlier  when  they  saw  Arakawa 
and  Lincoln  in  a  minuscule  booth  at  a  trade  show  hawking  the 
NES  with  ROB.  In  1987,  however,  Scoroposki  went  to  the  CES 
convention  and  observed  how  well  Nintendo  was  doing.  It  had  had 
a  healthy  Christmas,  and  Scoroposki  told  Fischbach  that  the  com- 
pany just  might  make  it.  They  decided  to  enter  the  Nintendo  busi- 
ness. Scoroposki  ran  a  sales  organization  that  sold  to  toy  stores  on 
the  East  Coast,  and  with  the  growing  number  of  Nintendo  systems 
in  homes  and  an  existing  shortage  of  good  software,  they  felt  they 
couldn't  lose — certainly  not  very  much.  They  decided  to  give  them- 
selves until  July  of  that  year  to  see  if  they  could  make  some  money. 
They  teamed  up  with  other  Activision  alums,  Robert  Holmes  (for- 
mer vice-president  of  marketing),  and,  to  represent  them  in  Tokyo, 
Hiro  Fukami.  To  choose  a  name,  they  picked  up  a  thesaurus.  Fisch- 


GAME    OVER 


bach  said  it  could  be  anything  as  long  as  it  started  with  an  A  or  a  Z, 
so  Scoroposki  opened  the  book  and  read  some  words  aloud.  They 
settled  on  Acclaim. 

The  new  company  released  its  first  game,  "Star  Voyager,"  in 
August  1987,  and  one  of  the  first  3-D  games,  called  "Tiger-Heli," 
soon  after.  Orders  poured  in,  more  than  their  most  optimistic 
projections.  "The  market  was  absorbing  anything,"  Fischbach  says. 
In  the  first  quarter  of  1988,  the  brand-new  company  made  more 
than  $1  million  in  profits.  Acclaim  grew,  merging  with  Gamma 
Capital  Corporation,  and  Fischbach  and  Scoroposki  took  it  public. 
Analysts  pushed  its  stock,  touting  it  as  one  of  the  best-run  video- 
game companies. 

In  1990  Acclaim  embarked  on  one  of  the  most  extensive  cam- 
paigns of  advertising,  corporate  sponsorship,  and  promotional  tie- 
ins  of  all  the  licensees.  On  the  back  of  Jell-O  Pudding  Pops  were 
game  tips.  Free  games  could  be  won  with  coupons  from  Chips 
Ahoy  cookies,  and  there  were  in-theater  displays  to  promote  the 
video-game  version  of  "Total  Recall,"  the  Arnold  Schwarzenegger 
film.  Acclaim  began  its  own  smaller  version  of  Nintendo  Power 
(mailed  to  only  250,000  players),  and  the  company  copublished 
(with  Scholastic)  a  book  based  on  the  game  "Wizards  &  Warriors." 

As  Acclaim  grew,  it  made  a  smart  deal  with  WMS,  the  company 
that  oversaw  both  Williams  Electronics  Games  and  Bally's  Mid- 
way. Acclaim  bought  the  right  of  first  refusal  to  make  Nintendo 
games  out  of  all  WMS  arcade  titles  (games  such  as  "Narc,"  which 
included  digitized  action  of  live  actors,  and  "Arch  Rivals,"  a  "bas- 
ketbrawl"  game).  Acclaim  then  became  the  second  licensee  to  be 
able  to  produce  more  than  five  games  a  year  when  it  bought  an- 
other Nintendo  licensee,  LJN  Toys,  which  MCA  had  unloaded. 
LJN  had  strong  games  in  its  catalog,  including  "Roger  Rabbit," 
several  "Spiderman"  games,  and  "NFL  Football."  When  the  deal 
was  being  negotiated,  Fischbach  asked  MCA's  president,  Sid 
Sheinberg,  "Why  don't  you  guys  buy  us  instead  of  us  buying  you?" 

Sheinberg  pushed  up  his  horn-rimmed  glasses  and  responded, 
"We  need  another  company  like  a  mouse  needs  a  hat  rack." 

It  was  a  time  of  enormous  growth  for  all  the  licensees.  When 
LJN  was  sold,  its  chairman,  Jack  Friedman,  founded  another  toy 


GAME    MASTERS  221 


company  called  THQ.  In  late  1991  THQ's  stock  almost  doubled  in 
value  when  it  received  its  license  to  sell  Nintendo  games.  "Based 
on  conservative  estimates,  we  see  sales  of  $40  million  this  year  and 
$80  million  in  1991,"  said  an  independent  money  manager  in  Busi- 
ness Week.  He  said  he  expected  the  stock  to  double  again  the 
following  year,  after  which,  when  it  hit  $100  million  in  sales,  "the 
likes  of  Mattel  will  want  to  acquire  it." 

Acclaim  and  the  other  companies  that  had  signed  on  early  were 
there  when  the  number  of  NES  users  jumped  from  2  to  3  and  then 
to  10  million.  By  the  time  other  companies  woke  up  to  the  video- 
game boom,  hundreds  of  millions  of  dollars  were  being  made  by 
licensees.  Twenty-five  had  signed  on  by  the  end  of  1987,  and  there 
were  forty  by  1988.  Companies  that  waited  lost  the  opportunity  to 
make  fortunes.  Trip  Hawkins,  founder  of  the  computer-game  com- 
pany Electronic  Arts,  realized  that  his  biggest  mistake  was  in  wait- 
ing so  long  to  enter  the  Nintendo  business.  His  company  missed 
out  on  sales  of  hundreds  of  millions  of  dollars. 

Through  those  early  years  there  was  a  sense  pervading  the  in- 
dustry that  any  games  would  sell  well  and  that  excellent  games 
would  sell  enormously  well.  The  potential  was  so  high  that  the 
pursuit  of  hot  games  was  as  fervent  as  that  of  blockbusters  in 
Hollywood.  But  the  potential  profits  were  higher  than  for  movie 
companies  because  the  development  costs  were  much  lower.  A 
smash  movie  like  Raiders  of  the  Lost  Ark  could  bring  in  $200  mil- 
lion, but  it  could  cost  a  quarter  of  that  to  make  and  millions  more 
to  market,  whereas  a  Nintendo  game  cost  about  $1  million  to 
develop  and,  for  the  biggest  games,  several  million  to  market.  The 
only  significant  expense  was  NOA's  central  requirement:  cash,  pay- 
able in  thirty  days.  After  the  money-back  offer  expired,  Nintendo 
originally  required  50  percent  up  front  and  the  balance  on  delivery. 
Then  most  companies  had  to  offer  a  secured  letter  of  credit  with 
their  orders  so  that  Nintendo  was  guaranteed  to  be  paid  on  deliv- 
ery. Nintendo  therefore  had  no  accounts  receivable  to  speak  of. 

For  the  companies  that  could  meet  Nintendo's  terms,  the  mar- 
ket remained  voracious.  In  the  record  industry,  releases  with  sales 
of  a  half  million  CDs  or  records  were  awarded  a  gold  record  and 
were  handsomely  profitable  at  a  sale  price  of  $12  or  $15.  Nintendo 
games  were  going  gold  every  day  of  the  week  and  sold  for  three 


222  GAME    OVER 


and  four  times  as  much.  "We  were  all  fat,  happy,  and  stupid,"  says 
Bob  Lloyd. 

Minoru  Arakawa  took  the  brunt  of  the  fury  when,  starting  in 
May  1988,  licensees  couldn't  get  the  volumes  of  the  games  they 
ordered  because,  Nintendo  claimed,  of  a  worldwide  microchip 
shortage.  Nintendo  was  accused  of  fabricating  the  shortage,  or  at 
least  exaggerating  it.  Arakawa  et  al  were  keeping  the  licensees  on 
a  tight  leash,  doling  out  games  like  a  child  with  a  bag  of  M&Ms. 
Critics  went  so  far  as  to  accuse  Nintendo  of  filling  the  orders  of 
companies  that  were  in  favor  and  holding  out  on  companies  on  the 
outs. 

At  this  time,  there  was  a  chip  shortage  that  affected  the  entire 
electronics  industry.  Nintendo  was  manufacturing  almost  2  million 
hardware  units  a  month  and  6  million  cartridges,  and  all  of  each 
contained  various  numbers  of  chips  that  were  in  short  supply. 
When  the  chip  shortage  was  at  its  most  acute,  in  the  middle  of 
1988,  Nintendo  responded  by  scrapping  a  dozen  games  in  the  cata- 
log. "Donkey  Kong"  was  one  victim.  It  also  postponed  producing 
new  games,  including  Sigeru  Miyamoto's  "Link,"  and,  later,  his 
"Super  Mario  Bros.  3."  Nintendo  also  began  the  controversial 
practice  of  parceling  out  cartridges  among  the  licensees.  Sean  Mc- 
Gowan,  a  toy-industry  analyst  for  the  investment  firm  of  Gerard 
Klauer  Mattison  Co.,  told  The  Wall  Street  Journal,  "The  scarcer 
something  is,  the  more  status  gets  attached  to  having  it.  You've  got 
to  keep  [games]  scarce."  Still,  he  conceded,  Nintendo  had  not 
manufactured  the  shortage  to  that  degree.  "Demand  is  far  higher 
than  they  thought  it  would  be,  and  they  would  like  to  see  a  lot 
more  shipped.  It's  their  strategy  to  undership  demand,  but  this  is 
ridiculous." 

Valid  questions  remained  about  how  severely  the  shortage  af- 
fected Nintendo  and  whether  the  company  could  have  found  alter- 
native chip  sources.  In  addition,  there  was  vehement  criticism 
about  the  way  Nintendo  allocated  cartridges.  Hiroshi  Yamauchi 
and  Minoru  Arakawa  held  the  fates  of  licensees  in  their  hands. 
Hiroshi  Imanishi  explained  the  allocation  system  when  reporters 
questioned  him  in  Japan.  "Licensees  tell  us  how  many  cartridges 
they  want,  and  then  we  evaluate  the  games.  Based  on  that  review, 


GAME    MASTERS  223 


we  decide  how  many  cartridges  should  become  available."  Repre- 
sentatives of  American  companies  that  were  heavily  (or  com- 
pletely) invested  in  the  Nintendo  business  were  outraged.  The 
shortage  came  when  customers  were  clamoring  for  all  the  games 
they  could  get. 

Arakawa,  Lincoln,  and  Juana  Tingdale,  who  was  in  charge  of  the 
licensees,  fielded  the  callers,  who  ranged  from  pleading  and  frus- 
trated to  threatening.  There  was  nothing  the  Nintendo  brass  could 
say  to  appease  company  presidents  who  had  placed  orders  for,  say, 
a  million  cartridges  and  had  received  only  one  or  two  hundred 
thousand.  Some  charged  Nintendo  with  sabotaging  their  business. 
Some  of  the  attacks  were  anti- Japanese:  "they"  were  doing  it  to 
"us."  The  argument  was  that  Nintendo  could  have  gotten  plenty  of 
chips  but  refused  to  deal  with  non- Japanese  semiconductor  com- 
panies. Arakawa  fanned  the  flames  when  he  all  but  said  that 
non-Japanese  chips  were  inferior.  "If  Americans  can  make  good- 
quality  chips  at  cheap  prices,  we  are  prepared  to  buy  them  at  any 
time,"  he  said.  "But  we  haven't  been  able  to  find  the  good  quality 
at  a  good  price  here."  Howard  Lincoln  said,  "The  licensing  pro- 
gram has  always  been  run  with  the  approach  that  we  would  treat 
every  licensee  the  same.  We  have  never  deviated  from  that.  We 
want  to  help  our  friends,  but  we  have  never  made  exceptions." 

Bob  Lloyd,  who  was  one  of  Arakawa's  and  Lincoln's  closest 
friends,  affirmed  that  he  received  no  special  treatment,  no  matter 
how  hard  he  tried.  Greg  Fischbach  of  Acclaim  called  and  pleaded 
with  Lincoln.  There  was  nothing  to  be  done,  he  was  told.  "The 
shortage  was  the  great  equalizer,"  Fischbach  found.  "Every  com- 
pany sold  out  every  game  no  matter  how  good  it  was,  no  matter 
how  well  the  company  was  managed.  Anyone  with  product  was 
able  to  sell  it." 

Nintendo  could  have  purchased  more  chips  as  the  shortage 
eased.  However,  the  prices  rose;  certain  chips  quadrupled  in  price. 
In  some  cases,  Nintendo  had  committed  to  sell  cartridges  for  a 
fixed  price,  and  rather  than  accept  a  smaller  profit  margin,  the 
company  chose  to  wait.  By  the  time  chip  prices  fell  in  the  latter 
part  of  1989,  a  crucial  year  and  a  half  had  come  and  gone,  and 
companies  had  lost  a  chance  to  make  millions  of  dollars. 

This  was  only  one  of  the  controversies  that  turned  some  licen- 


224  GAME    OVER 


sees  against  Nintendo.  Gail  Tilden  at  Nintendo  Power  personified 
NOA's  ability  to  make  or  break  companies.  Each  month  she  and 
her  staff  looked  at  a  list  of  new  games  and  checked  their  evalua- 
tions. She,  Howard  Phillips,  and  several  others  tried  many  of  the 
games  themselves  and  determined,  after  consulting  with  their 
bosses,  how  much  coverage  they  would  get  in  the  magazine.  Tilden 
looked  at  how  "deep"  they  were;  as  she  put  it,  "how  much  cover- 
age it  took  to  demonstrate  the  games  through  maps  and  text." 
Coverage  in  Power  was  a  significant  factor  in  whether  or  not  a 
game  would  hit.  Licensees  that  had  a  game  coming  out  trumpeted 
Nintendo  Power  coverage  in  connection  with  any  other  advertising 
and  promotion  strategies. 

Charges  surfaced  that  Nintendo  used  the  magazine  to  manipu- 
late and  control  the  industry.  Good  games  from  companies  that 
were  not  in  Nintendo's  good  graces  were  being  ignored  while  some 
terrible  games  received  pages  of  coverage.  The  head  of  one  Nin- 
tendo licensee  said,  "If  I  pissed  Nintendo  off,  I  would  get  less 
product.  My  games  would  get  hit  in  Nintendo  Power,  and  they'd  get 
low  ratings."  He  would  "piss"  Nintendo  off,  he  said,  by  releasing 
games  for  Sega  or  other  competing  systems,  or  by  criticizing  the 
security  chip  or  licensing  agreement. 

Tilden  insisted  that  the  licensees'  own  games  had  the  same 
chances  of  extended  coverage  in  Power  as  Nintendo's.  However,  as 
a  spokesperson  for  one  licensee  said,  "Their  games  always  get 
covers,  always  get  page  after  page  in  the  magazine,  while  we  are 
made  to  feel  privileged  to  be  mentioned  in  passing."  Tilden's 
counterargument  was  that  the  games  Nintendo  released  had  supe- 
rior evaluations  and  earned  the  coverage.  Nintendo  did  have  a 
sound  philosophy  when  it  came  to  the  games  it  released.  They 
followed  the  model  Yamauchi  had  pioneered  at  NCL;  only  several 
highly  rated  games  were  released  a  year.  NOA  culled  them  from 
NCL's  list  and  chose  only  a  few  of  those  released  in  Japan.  The 
ones  that  survived  the  cut  were  more  likely  to  be  great  games. 
That,  coupled  with  NOA's  marketing  barrage,  resulted  in  major 
successes  one  out  of  three  times,  compared  to  one  out  of  twenty 
for  the  licensees. 

To  prove  that  Nintendo  had  the  licensees'  best  interest  at  heart, 
it  offered  to  assist  them  in  game  development.  Howard  Phillips 


GAME    MASTERS 


met  with  licensees'  designers  and  gave  them  critiques  and  sugges- 
tions. The  Game  Master's  insights  were  deemed  invaluable  by 
some  companies.  "I  responded  as  if  I  were  a  player  out  in  the 
marketplace  getting  this  one  new  game,  comparing  it  with  all  the 
games  that  I've  seen,"  he  says.  However,  sometimes  they  were  less 
than  appreciative.  "They  thought  we  were  telling  them  their  busi- 
ness," Phillips  says. 

Tony  Harman,  a  manager  in  the  game-evaluation  group,  also 
worked  with  licensees.  Besides  giving  advice,  the  group  made  cer- 
tain that  the  games  in  development  met  Nintendo's  standards. 
They  didn't  catch  everything,  however.  Harman  worked  with  a 
licensee  called  Jaleco  on  an  NES  version  of  "Maniac  Mansion," 
which  Jaleco  had  licensed  from  the  game's  creators  at  LucasArts. 
He  gave  the  go-ahead  and  thousands  of  games  were  sold  before 
someone  at  Nintendo  noticed  a  quirky  touch:  a  player  could  place 
a  hamster  in  a  microwave  oven  and  the  hamster  would  explode. 

Nintendo  informed  Jaleco  that  the  exploding  hamster  had  to  be 
deleted  in  future  cartridges.  In  a  press  release,  Jaleco  defended  the 
original  version  of  the  game:  "Although  Jaleco  USA  does  not 
condone  the  placing  of  rodents  into  a  cooking  apparatus,  the  fea- 
ture added  a  degree  of  fun  to  the  already  wacky  and  wild  game." 

With  Capcom  USA,  Phillips's  team  edited  some  of  the  grislier 
games  that  came  in  from  its  Japanese  parent  company,  although 
Capcom's  own  censors  weeded  out  the  most  offensive  touches. 
The  American  version  of  the  brutal  "Final  Fight"  was  released 
without  some  of  the  original's  flourishes:  blood  oozing  from 
wounds,  and  villains  who  were  exclusively  black  and  Hispanic. 
When  a  Capcom  USA  representative  suggested  that  it  was  taste- 
less to  have  the  game's  hero  beat  up  a  woman,  a  Japanese  designer 
responded  that  there  were  no  women  in  the  game.  "What  about 
the  blonde  named  Roxy?"  the  American  asked.  The  designer  re- 
sponded, "Oh,  you  mean  the  transvestite!"  Roxy  was  given  a  hair- 
cut and  new  clothes. 

Less  dramatic  modifications  were  made  in  "Mega  Man."  In  the 
Japanese  version,  the  hero  got  strength  when  he  ate  sushi.  The 
Americans  had  it  changed  so  that  he  devoured  hot  dogs.  They  also 
changed  his  eyes  to  make  him  appear  less  Asian. 

Some  of  the  licensees  tried  to  cash  in  with  products  other  than 


GAME    OVER 


games.  They  developed  peripherals,  or  add-ons,  to  the  Nintendo 
system.  Besides  Software  Toolworks'  Miracle  piano,  Bandai  Cor- 
poration, a  Japanese  toy  company  and  American  licensee,  made 
the  Power  Pad.  It  was  an  answer  to  parents  who  worried  that  kids 
spent  too  much  time  in  front  of  the  television,  sluglike,  playing 
Nintendo.  The  Power  Pad,  a  three-foot-square  flat  plastic  sheet, 
could  be  attached  to  the  NES  in  the  place  of  one  of  the  controllers. 
Sensors  on  the  pad  "read"  the  footsteps  of  stocking  feet.  In  combi- 
nation with  games  such  as  "Track  Meet,"  players  controlled  on- 
screen characters  (a  sprinter,  a  long  jumper)  with  their  running  in 
place  and  jumping  on  the  pad.  Nintendo  made  a  deal  with  Bandai 
to  sell  the  Power  Pad  with  the  NES  in  America,  and  half  a  million 
units  were  sold. 

Mattel  released  the  Power  Glove,  a  space-age  piece  of  armor 
that  kids  strapped  on  to  their  hand  and  forearm.  It  was  developed 
by  JPL,  a  company  that  dealt  in  futuristic  virtual-reality  technolo- 
gies. Using  the  glove  in  place  of  a  controller,  players  could  use 
their  arms  and  hands  to  play  games.  They  fought  Mike  Tyson  with 
full  punches  and  drove  a  car  with  their  arm  outstretched,  fist 
clenched,  pointed  at  sensors  that  attached  to  the  TV.  Its  first 
Christmas,  the  Power  Glove  sold  out  immediately,  although  inter- 
est in  the  product  evaporated  once  kids  realized  how  difficult  it 
was  to  make  it  work  well. 

Peripherals  and  games  continued  to  be  released  by  the  hundreds 
a  year  as  the  number  of  licensees  grew.  There  were  more  than  sixty 
in  1990,  when  one  of  the  most  diehard  holdouts,  Electronic  Arts, 
finally  signed  up. 

In  a  new  industrial  park  along  the  freeway  that  connected 
Silicon  Valley  with  San  Francisco  stood  a  three-tiered  building  that 
looked  like  a  flattened  Guggenheim  Museum  wrapped  in  blue 
ribbon.  Inside,  above  the  receptionist's  desk  on  the  second  floor, 
were  three  monitors  showing  off  video  games  such  as  "Skate  or 
Die,"  "James  Pond,"  and  "John  Madden  Football."  To  reach  the 
office  of  the  company's  founder,  one  had  to  wade  through  a  sea  of 
Technicolor  Nerf  balls.  There,  behind  a  small  desk,  sat  Trip  Haw- 
kins, boyishly  dressed  in  a  polo  shirt,  jeans,  and  Converse  All  Stars. 


GAME    MASTERS  227 


His  straw-colored  hair  was  stuffed  unsuccessfully  into  a  San  Fran- 
cisco Giants  cap. 

There  was  a  philosophy  behind  the  Nerf  balls,  Hawkins  ex- 
plained. "Whenever  things  get  too  serious  around  here,  every  em- 
ployee is  obligated  to  load  up  with  Nerfs  and  lead  an  attack, 
screaming,  'NERF  ALERT!'  "  On  many  evenings,  EA  employees 
would  be  working  in  front  of  their  computer  screens  when  some- 
one would  flip  a  switch  and  the  place  would  be  cast  into  darkness 
except  for  the  muffled  beams  from  emergency  lights  and  the  glow 
of  computer  screens.  It  was  a  signal  to  employees  to  take  position 
and  be  on  guard.  Their  colleagues  were  crawling  around  partitions, 
under  desks,  or  around  Xerox  machines.  Each  armed  with  five 
Nerf  balls,  they  set  out  on  the  attack.  Anyone  who  was  nailed  was 
out.  "The  idea,"  Trip  Hawkins  says,  "was  to  keep  people  loose  and 
remind  them  why  we're  here.  They  know  what's  going  on  here 
when  they  see  that  you  can  bounce  a  Nerf  ball  off  my  nose  in  a 
meeting.  It  sets  a  tone  for  the  company.  .  .  .  It's  from  playfulness 
that  you  get  your  best  creativity." 

Hawkins's  office  had  Nerf  balls  in  a  fruit  bowl  among  the  or- 
anges and  apples.  On  the  wall  was  a  mock  "Dewar's  profile"  and 
schedules  of  all  the  major-league  baseball  teams.  Because  of — or 
in  spite  of— all  this,  Hawkins's  company  had  grown  to  be  one  of 
the  largest  and  most  respected  entertainment  computer  software 
companies  in  the  world. 

Hawkins  had  grown  up  in  Pasadena,  California,  where  he  spent 
a  childhood  devoted  to  playing  games.  In  high  school,  he  designed 
board  games.  During  his  first  year  at  Harvard,  he  made  a  football 
simulation  that  used  actual  sports  statistics. 

Hawkins  created  his  own  interdisciplinary  major:  strategy  and 
applied  game  theory,  combining  social  science  and  computer 
courses.  Back  then,  in  1975,  he  decided  that  one  day  he  would  start 
an  entertainment  software  company.  He  even  knew  when:  1982. 
"That's  how  long  it  would  take  for  the  technology  to  get  into 
enough  homes  so  that  there  would  be  enough  people  who  would 
want  to  buy  it,"  he  says. 

Hawkins  enrolled  in  the  MBA  program  at  Stanford,  and  after 
graduating  joined  Apple  as  its  manager  of  market  research.  The 


GAME    OVER 


Apple  II  computer  had  been  out  for  a  year;  Hawkins  was  the 
company's  sixty-eighth  employee.  He  helped  put  together  a  service 
program  and  instituted  the  industry's  first  field  training  for  dealers. 
He  also  worked  on  the  first  accounting  and  mailing-list  programs, 
and  on  a  word-processor,  Apple  Writer.  It  was  extremely  exciting 
to  be  part  of  Apple  during  those  early  years.  "We  didn't  know  what 
we  were  doing,"  Hawkins  says.  "But  we  believed  in  it  with  every- 
thing we  were." 

Regardless  of  how  well  Apple  did  during  Hawkins's  tenure,  he 
considered  the  company  a  brief  stopping-off  point.  In  May  1982, 
according  to  his  plan,  he  left  Apple  at  the  age  of  twenty-eight,  and 
arranged  a  meeting  with  a  hand-picked  team,  renegades  from  Ap- 
ple and  other  Silicon  Valley  companies,  and  Bing  Gordon,  a  col- 
lege buddy.  Gordon  was  working  in  San  Francisco  at  Ogilvy  and 
Mather,  the  advertising  agency.  After  graduating  from  Stanford, 
he  had  worked  for  a  string  of  agencies,  and  then  was  product 
marketing  manager  for  an  industrial  electronics  firm.  Tanned,  with 
thick  hair  brushed  to  the  side,  he  was  a  dandy,  dressing  in  outfits 
that  included  expensive  white  shirts  under  a  vermilion  double- 
breasted  wool  vest,  flowered  rainbow  tie,  gray  flannel  pants,  and 
black  loafers. 

Hawkins  held  a  powwow  at  his  house  with  Gordon  and  his  group 
of  potential  founders.  "Hypothetically,  if  there  was  a  company, 
what  should  it  be  like?"  he  asked.  As  they  brainstormed,  Hawkins 
told  the  group  that  Don  Valentine,  the  venture  capitalist  who  had 
helped  finance  fledgling  companies  such  as  Apple  and  Atari,  was 
ready  with  a  $2  million  investment.  Before  the  meeting  was  over, 
the  group  decided  to  go  forward.  They  chose  the  name  Amazing 
Software.  Later,  inspired  by  the  movie  studio  United  Artists,  they 
changed  it  to  Electronic  Arts. 

At  Apple  Hawkins  had  seen  that  the  most  creative  developers 
didn't  want  to  work  on  staff.  "When  you  put  them  on  staff,  they 
lost  something."  He  believed  that  EA  needed  to  find  out  a  way  to 
motivate  people  to  do  their  work  independently.  He  believed  that 
the  programmers  were  artists  who  ought  to  be  treated,  motivated, 
and  marketed  as  such. 

Hawkins  used  the  old  Hollywood  studio  system  as  a  model  and 
put  software  designers  under  contract.  He  supported  them  but 


GAME    MASTERS  229 

gave  them  the  freedom  to  work  in  whatever  eccentric  ways  they 
chose.  He  was  the  first  to  credit  them  as  authors  on  their  games. 
The  packaging  was  designed  by  graphic  artists,  like  at  record  com- 
panies. Bing  Gordon  came  up  with  an  advertising  campaign  that 
summed  up  the  company's  driving  principle.  A  handful  of  EA's 
independent  software  designers  were  photographed  in  a  soft  black- 
and-white  shot;  their  faces  were  youthful,  intense,  and  individual. 
A  headline  asked:  can  a  computer  make  you  cry? 

Hawkins  built  the  company  with  his  rare  combination  of  techie 
nerdiness  and  business  acumen.  His  management  style  was  quirky 
and  creative.  Staff  meetings  were  something  between  a  church 
service  and  an  NFL  huddle.  There  were  impassioned  speeches 
about  "the  mission,"  as  well  as  lots  of  clowning.  Before  the  meet- 
ings, Hawkins  asked  his  department  heads  if  they  had  any  "prais- 
ings" for  him.  If  he  was  told,  for  example,  that  an  employee  had 
put  in  a  seventy-hour  week  in  order  to  close  the  books  for  the 
month  and,  in  the  process,  had  discovered  a  glitch  in  the  accounts- 
payable  process,  Hawkins  singled  the  person  out  with  lots  of 
thanks  and  congratulations.  He  also  gave  out  performance  awards. 
At  year-end  meetings,  he  awarded  most-valuable-player  and 
rookie-of-the-year  prizes. 

EA's  first  year  brought  creative  success — the  Studio,  as  it  be- 
came known,  produced  its  first  games — but  it  was  selling  less  than 
half  the  number  of  games  it  could  have  if  it  had  better  distribution. 
Larry  Probst,  another  Stanford  graduate,  was  hired  as  vice-presi- 
dent of  sales.  Probst  had  been  national  sales  manager  at  Activision 
and  national  accounts  manager  at  Clorox,  and  had  held  various 
positions  at  Johnson  &  Johnson  before  coming  to  EA.  He  worked 
with  Hawkins  to  create  what  they  named  the  Electronic  Arts  Affili- 
ated Labels,  modeled  after  the  distributing  companies  in  the  re- 
cord industry.  The  idea  was  to  hire  more  sales  reps  and  build  a 
bigger  organization  to  help  EA  distribute  more  software.  Other 
software  companies,  such  as  Mediagenic  and  LucasArts,  became 
EA  Affiliated  Labels — that  is,  EA  distributed  their  games — and 
the  consortium  soon  became  the  WEA  (Warner-Elektra- Asylum) 
of  the  computer-game  industry.  This  distribution  business  grew  to 
represent  a  third  of  EA's  earnings. 

Hawkins  continued  to  oversee  the  company  when  it  grew  to 


230  GAME    OVER 


three  hundred  employees  and  three  divisions.  Besides  the  Studio, 
where  the  games  were  created  (eventually  more  than  a  hundred 
game  designers  were  under  contract,  managed  by  in-house  produc- 
ers), and  the  Affiliated  Labels,  there  was  a  growing  international 
division.  Electronic  Arts  had  many  hits,  but  Hawkins  was  careful 
not  to  rely  on  them.  No  one  game  accounted  for  more  than  6 
percent  of  revenues  at  any  time.  The  company  had  a  sound  reputa- 
tion with  good  games,  innovative  marketing,  and  the  most  effective 
public-relations  department  in  the  business.  The  Electronic  Arts 
spokespeople — Hawkins,  Gordon,  and  Probst — were  probably  the 
most  quoted  experts  on  entertainment  software  in  the  industry. 

EA's  games  were  as  diverse  as  "Skate  or  Die,"  "Populous,"  and 
a  complex  strategic  historical  war  game,  "Patton  vs.  Rommel." 
Many  of  the  most  successful  were  sports  games.  Hawkins  recruited 
sports  stars  (Larry  Bird,  Michael  Jordan,  John  Madden)  and  other 
celebrities  (Chuck  Yeager)  to  endorse  games.  The  big  names  car- 
ried marketing  weight.  Retailers  might  not  have  wanted  to  hear 
about  yet  another  football  game,  but  they  were  interested  in  "John 
Madden  Football."  The  endorsements  came  in  the  beginning  for 
relatively  small  fees;  Dr.  J.  signed  on  for  only  $20,000.  When  John 
McEnroe's  agent  wanted  $350,000,  EA  passed. 

A  decision  Hawkins  made  from  the  beginning  that  proved  a 
successful  policy  was  to  design  software  for  many  computers,  from 
the  Apple  II  to  Amiga  to  Commodore  64  to  IBM.  The  one  plat- 
form for  which  Electronic  Arts  did  not  make  games  was  video- 
game systems.  Hawkins  felt  that  the  post-Atari-boom  video-game 
business  would  all  land  back  on  computers,  where  it  belonged,  and 
when  Nintendo  made  its  appearance  in  the  United  States,  he  ex- 
pected that  it  would  quickly  disappear.  Other  companies  that  had 
been  in  the  video-game  market,  such  as  Activision,  had  switched 
over  to  make  games  for  IBM  and  Apple  PCs.  Many  people  in  the 
industry  felt  the  future  had  gone  to  PCs  forever. 

Hawkins  felt  that  computers  were  superior  in  every  way.  The 
one  was  relatively  boundless;  the  other  was  rinky-dink.  He  incor- 
porated his  prejudice  in  the  original  Electronic  Arts  business  plan, 
a  commitment  to  "stay  with  floppy-disk-based  computers  only." 
He  believed  there  was  a  growing  number  of  computer  users  who 


GAME    MASTERS 


were  hobbyists,  primarily  interested  in  entertainment,  and  that 
they  bought  their  computers  to  play  games.  In  addition,  there  were 
the  people  who  bought  their  home  computers  for  business  but  who 
would  also  buy  a  game  or  so  every  year.  Hawkins  believed  that 
computers  would  soon  become  the  all-purpose  machines  for  every- 
thing from  spreadsheets  to  "Pac-Man." 

He  was  wrong.  Most  people  bought  computers  for  business,  not 
entertainment.  For  their  leisure  time  they  wanted  to  get  as  far 
away  from  computers  as  possible — at  least  as  far  away  as  the  family 
living  room  and  the  television  set,  to  which  a  video-game  machine 
was  attached.  In  focus  groups,  kids  affirmed  this.  The  message 
EA's  researchers  heard  was  that  computers  were  boring.  Mom  and 
Dad  wanted  kids  to  use  one,  their  teacher  wanted  them  to  use  one 
— computers  were  in  the  category  of  things  that  you  had  to  do. 
When  the  researchers  asked  the  kids  what  they  wanted  to  do,  the 
answer  was  nearly  unanimous:  Nintendo. 

"The  best  companies  and  the  best  programmers  were  making 
computer  games,"  one  of  Hawkins's  game  designers  says.  "But  the 
Nintendo  player  didn't  care  about  the  sophisticated  leaps  we  were 
making  on  computers — the  frame  rate  of  the  images  or  incredible 
sound.  They  just  wanted  fun.  It  was  like  we  were  making  gas  guz- 
zlers and  the  Japanese  were  making  subcompacts.  Our  competi- 
tors saw  the  writing  on  the  wall  and  started  making  subcompacts." 

The  NES  sounded  the  death  knell  for  the  dream  of  the  personal- 
computer  revolution,  that  of  one  computer  per  family.  Bing 
Gordon,  Hawkins's  buddy,  compared  it  to  the  dream  of  James 
Watt,  inventor  of  the  steam  engine.  Watt  had  believed  that  one  day 
there  would  be  a  single  engine  in  every  household  that  would 
connect  to  all  kinds  of  pulleys  and  gears  to  run  everything  from  the 
washing  machine  to  a  food  mixer.  Instead,  technology  progressed 
rapidly  and  motors  were  soon  so  cheap  that  every  household  could 
have  many — everything  from  the  washing  machine  to  the 
Cuisinart.  Microprocessors  got  cheaper  too.  Instead  of  one  central 
computer  running  everything  in  a  household,  there  were  many 
microprocessor-based  tools. 

Electronic  Arts  had  backed  the  wrong  horse.  Nintendo  became 
gargantuan  as  EA  stood  by  and  watched,  and  Hawkins  was  in 


GAME    OVER 


trouble:  he  almost  lost  his  company.  At  one  high-level  meeting  in 
1989,  when  financial  advisers  complained  about  him,  Hawkins 
pulled  what  one  of  his  partners  calls  "his  Nikita  Khrushchev";  in 
the  middle  of  a  discussion  of  the  fate  of  EA,  he  removed  his  shoe 
and  pounded  it  on  the  table. 

EA  had  had  its  worst  year  ever,  and  in  the  face  of  this  downturn 
Hawkins  had  decided  to  expand  the  company's  overseas  opera- 
tions. In  the  span  of  a  year,  he  founded  operations  in  England  and 
Japan  and  acquired  companies  in  Australia  and  France.  It  was  too 
much  too  fast.  The  companies  in  France  and  Japan  had  to  be  shut 
down,  and  the  British  and  Australian  operations  had  to  be 
trimmed  back.  When  EA  wrote  off  a  lot  of  mistakes  and  finished 
with  its  first  quarterly  loss  in  six  years,  the  board  finally  stepped  in. 
Board  members  threatened  to  remove  Hawkins  as  head  of  the 
company.  One  told  him  plainly,  "You're  not  qualified  to  be  the 
president  of  a  company  this  size." 

Hawkins  knew  they  were  wrong.  He  believed  firmly  that  he 
could  build  EA  into  a  profitable  $100  million  company;  he  just 
needed  time.  After  he  got  the  meeting's  attention  with  his  shoe,  he 
says,  "I  ate  a  lot  of  humble  pie.  I  wasn't  a  prima  donna.  I  said, 
Tine.  What  is  it  you  think  I  should  do?'  " 

Lots  of  ideas  were  voiced  that  day,  but  Hawkins  already  knew 
the  answer.  "We  had  to  go  into  the  video-game  business,"  he  says, 
"and  that  meant  the  world  of  mass  market;  there  were  millions  of 
customers  we  were  going  to  be  trying  to  reach."  He  spoke  elo- 
quently, and  the  more  he  spoke,  the  more  animated  he  became. 
He  addressed  the  group,  admitting  that  it  galled  him  to  realize  that 
he  had  been  wrong.  Now  it  was  time  to  catch  up. 

Hawkins  spread  the  news  to  his  troops.  "Basically,"  one  engi- 
neer says,  "he  read  us  the  riot  act." 

There  were  some  serious  concerns.  The  inventory  risk — the 
need  to  place  such  large  orders  with  Nintendo — was  dangerous. 
EA  needed  capital. 

In  August  1990,  a  headline  on  the  business  pages  asked:  will 
electronic  arts  sizzle  or  slumber?  The  article  revealed  that  the 
computer-game  company  was  going  public  at  $8  a  share.  With 
money  from  the  public  offering,  the  company  charged  into  the 


GAME    MASTERS  233 

video-game  business.  Its  first  "buy"  of  cartridges  from  Nintendo 
cost  $4  million,  equal  to  the  entire  finished-goods  inventory  of  all 
of  the  company's  floppy-disk  products — five  hundred  of  them — on 
a  single  game.  The  risk  was  enormous. 

Moreover,  creating  video  games  was  different.  Previously  Elec- 
tronic Arts  had  been  targeting  sophisticated  computer  gamers,  and 
their  designers  weren't  much  interested  in  making  games  for 
twelve-year-olds.  The  company  had  made  almost  no  action  games. 

Hawkins  turned  his  missionary  zeal  toward  designers,  setting 
them  the  task  of  creating  Nintendo  games.  Many  felt  the  effort  was 
beneath  them,  and  that  the  8-bit  system  was  a  giant  step  backward; 
they  were  used  to  16-bit  systems  with  sixteen-color  high-resolution 
EGA  and  VGA  displays  and  640K  of  RAM.  Such  games  had  two, 
four,  six,  or  more  megabytes  of  instructions.  To  write  for  Nintendo 
meant  working  with  its  slower  processor,  128K  of  RAM,  fewer 
colors,  and  a  lot  less  storage. 

Although  most  Electronic  Arts  developers  sneered  at  video 
games,  some  young  designers  were  ecstatic.  "At  last,"  said  Michael 
Kosaka,  the  author  of  "Skate  or  Die." 

Kosaka  sat  at  a  desk  so  cluttered  with  computers  and  video- 
game systems  and  monitors  that  his  office  looked  like  a  control 
panel  at  a  hipper  version  of  NASA's  Mission  Control.  In  addition, 
there  were  toys,  a  Darth  Vader  poster,  a  stereo,  a  Raleigh  twenty- 
one-speed  bike,  and  books  about  karate  in  English  and  Japanese. 
Kosaka  was  deep  into  his  first  Nintendo  game,  "Skate  or  Die  2." 

Another  designer  contracted  to  EA's  Studio  was  Will  Harvey, 
who  had  founded  his  own  company  when  he  was  only  sixteen. 
Harvey  had  been  an  honors  student  from  Foster  City,  California, 
an  Eagle  Scout,  and  a  football  player  when  he  thought  up  the  idea 
for  a  computer  game  that  transformed  his  Apple  II  into  a  music 
studio.  The  program,  "Music  Construction  Set,"  was  remarkable 
for  its  time.  A  joystick  controlled  a  movable  hand  on  the  video 
screen  that  picked  up  notes,  sharps,  clef  signs,  and  other  symbols, 
then  set  them  down  on  a  staff.  The  computer  played  them  back 
when  the  tiny  hand  pointed  at  an  icon  of  a  piano.  The  program 
required  no  computerese  and  no  previous  knowledge  of  musical 
notation.  Trip  Hawkins  saw  it  and  decided  "in  about  three  sec- 


23<4  GAME    OVER 

onds"  that  he  wanted  it.  Reviewing  it  in  1983,  Time  said  it  was  "one 
of  those  rare  pieces  of  software  that  open  up  the  computer  market 
to  a  new  class  of  consumer." 

After  further  versions  of  Music  Construction  Set,  Harvey  came 
up  with  a  game  called  "Zany  Golf."  Then  he  ambitiously  set  out  to 
create  an  adventure  game  like  none  he  had  ever  seen.  The  game, 
"Immortal,"  was  unique  because  of  the  perspective  from  which  the 
player  experienced  the  game — as  if  he  were  looking  down  on  the 
world  from  heaven.  The  main  character  wasn't  a  typically  youthful, 
virile  warrior  but  an  ancient  wizard.  The  best  part  of  the  game, 
Harvey  believed,  was  that  "when  you  got  to  the  end,  you  realized 
that  what  you  probably  thought  was  wrong." 

When  Harvey's  game  was  completed,  EA  sent  "Immortal"  to 
the  Nintendo  evaluators.  This  was  the  first  time  EA  worked  with 
Nintendo,  and  the  computer-game  purists  were  skeptical  of  the 
feedback  they  would  receive  because  they  assumed  they  knew  a  lot 
more  about  computer  games  than  anyone  at  NOA. 

Weeks  later,  when  Nintendo  came  back  with  suggestions,  Har- 
vey was  surprised  at  how  sensible  they  were.  The  evaluators 
wanted  him  to  add  a  more  substantial  musical  score.  They  said  that 
the  wizard  should  have  more  than  one  life  per  game.  The  wizard's 
battles  should,  they  said,  take  place  on  the  screen;  they  should  not 
be  conceptual  battles;  the  hacking  and  pummeling  was  an  excuse 
for  kids  to  press  the  buttons  on  the  controller  a  lot. 

Nintendo  wanted  Harvey  to  add  a  scoring  system,  which  he  re- 
sisted. "This  was  a  quest,"  he  said.  "The  only  score  is  survival." 
Harvey  also  resisted  the  addition  of  more  than  one  life.  "Just  like 
in  life,  you  should  have  to  figure  it  out  the  first  time — slowly, 
cautiously — or  die,"  he  said.  Still,  he  agreed  to  all  of  Nintendo's 
suggestions  except  for  the  scoring. 

Bing  Gordon  said  that  in  spite  of  his  reservations  about  Nin- 
tendo, "over  the  course  of  working  with  them  I've  been  highly 
impressed  with  the  integrity  of  their  people.  The  rating  system  is 
fair.  On  a  scale  from  zero  to  a  hundred,  where  zero  meant  the 
system  was  totally  manipulated  for  Nintendo's  self-interest  and  a 
hundred  meant  that  it  was  absolutely  democratic,  they'd  probably 
get  a  ninety.  I've  seen  a  little  bit  of  self-interest,  but  this  is  Amer- 
ica, the  land  of  self-interest." 


GAME    MASTERS 


PC  games,  formerly  EA's  mainstay,  became  less  important.  EA's 
PC  business  shrank  from  93  percent  to  66  percent  of  total  software 
sales.  The  PC  software  business  remained  solid  (overall  industry 
sales  were  up  13  percent  in  1990  after  declining  in  1989),  but  it  was 
dwarfed  by  video-game  sales.  Within  a  year  of  going  public,  EA 
stock  more  than  quadrupled  in  price,  reaching  over  $35.  In  late 
1991  the  company  was  trading  at  up  to  thirty-four  times  earnings. 

In  December  1990,  Hawkins  turned  the  day-to-day  management 
of  Electronic  Arts  over  to  Larry  Probst,  and  Bing  Gordon  took 
over  a  larger  and  more  visible  role.  Hawkins,  who  retained  the  title 
of  chairman,  had  other  business  to  attend  to.  In  an  item  appearing 
in  The  New  York  Times  in  June  1991  it  was  revealed  that  Hawkins 
had  stepped  down  at  EA  because  he  had  a  new  project  in  the 
works.  "Industry  sources  say  that  [Electronic  Arts]  ...  has  engi- 
neers hidden  in  the  California  woods."  They  were,  the  article  said, 
working  on  a  new  kind  of  video-game  machine,  and  Hawkins  was 
personally  in  charge. 

Electronic  Arts  was  one  of  an  increasing  number  of  Nintendo 
licensees  that  thrived.  By  1991,  a  hundred  companies  had  Nin- 
tendo's quality  seal.  Many  did  well,  but  in  exchange  they  were 
turning  over  large  amounts  of  money,  as  well  as  tacit  control  of 
their  businesses,  to  Nintendo.  One  company,  however,  refused.  To 
fight  back,  its  executives  set  a  plan  in  motion  that  would,  they 
believed,  permanently  break  Nintendo's  choke  hold  on  the  Ameri- 
can video-game  industry. 


THE  BIG  SLEEP 


11 


> 


"You  have  no  idea  what  you  have  taken  on:  a  tiger  who  will  skin  you  piece  by 
piece." 

— Howard  Lincoln 


Minora  Arakawa  had  an  odd  habit:  he  fell  soundly  asleep  at  the 
most  inauspicious  moments. 

On  the  way  back  from  Japan  one  time,  Arakawa  and  Howard 
Lincoln  stopped  off  in  Honolulu,  where  they  checked  into  the 
Kahala  Hilton.  As  it  happened,  the  two  Nintendo  bosses,  both 
passionate  duffers,  arrived  while  the  Hawaiian  Open  was  in  pro- 
gress at  their  hotel. 

Arakawa  and  Lincoln  put  on  their  swimming  trunks  and  headed 
for  the  pool.  En  route,  Arakawa  suggested  a  detour;  they  should 
go  check  out  the  tournament,  he  said. 

Lincoln  told  him  he  was  crazy;  one  does  not  simply  go  watch  the 
Hawaiian  Open  on  a  whim.  Tickets  sell  out  months  in  advance. 

Arakawa  shrugged  and  said,  "Come  on.  Let's  see." 

Along  one  fairway,  the  two  men  found  a  place  to  watch  from 
behind  a  roped-off  area  and  stood  there  for  a  while  as  a  succession 


THE    BIG    SLEEP  237 


of  powerful  drives  arced  past  them.  Lincoln  remarked  on  one  of 
them.  "Nice  shot!"  he  exclaimed. 

When  he  heard  nothing  back,  he  turned  and  discovered  that 
Arakawa  was  gone.  Looking  around,  he  saw  that  Arakawa,  who 
had  snuck  under  the  rope,  was  sitting  in  the  middle  of  the  fairway 
under  a  palm  tree. 

The  golfers,  including  Jack  Nicklaus,  Tom  Watson,  and  Lee  Tte- 
vino,  continued  to  tee  off,  their  golf  balls  flying  over  Arakawa's 
head.  Then,  as  Lincoln  watched,  Arakawa  stretched  out,  his  arms 
under  his  head,  and  fell  soundly  asleep. 

Looking  around  to  make  sure  that  no  one  was  watching,  Lincoln 
ducked  under  the  rope  and  headed  over  toward  Arakawa,  who  was 
comfortably  snoring.  "Mino,  for  Christ's  sake,  wake  up,"  Lincoln 
called  out,  shaking  his  friend. 

The  Nintendo  president  was  unwakable,  so  Lincoln  lifted  him  as 
best  he  could  and  dragged  him  off  the  course.  Walking  by  at  that 
moment,  Tom  Watson  shook  his  head  in  disgust. 

They  were  safely  off  the  course  when  Arakawa  awoke,  smiling 
up  at  Lincoln.  He  stretched  and  sat  up.  "What's  wrong?"  he  asked. 

Most  of  Arakawa's  catnaps  were  harmless,  but  there  was  one 
notable  exception.  In  August  1988,  Mino  and  Yoko  threw  a  small 
but  lavish  dinner  party  in  their  beautiful  house  in  Medina,  an 
exclusive  suburb  of  Seattle.  Yoko,  a  studied  cook,  had  prepared  an 
elegant  dinner:  an  appetizer  of  scallops,  a  mixed  salad,  and  barbe- 
cued salmon.  Their  guests  were  Howard  Lincoln  and  Hideyuki 
Nakajima  and  Randy  Broweleit,  executives  of  Atari  Games,  which 
had  just  become  a  licensee. 

After  the  meal,  they  took  their  drinks  outside.  They  sat  on  the 
expansive  deck,  from  which  they  had  a  view  of  the  lake  and  Seat- 
tle's skyline.  Arakawa  fell  asleep. 

Hide  (pronounced  He-day)  Nakajima,  a  compact  man  whose 
conversation  was  punctuated  with  a  euphonious  giggle,  became 
visibly  impatient.  Yoko  said  that  it  was  not  unusual  for  her  husband 
to  conk  out  in  the  middle  of  a  dinner  party,  but  Nakajima  looked  at 
Arakawa  with  disgust.  He  would  not  forget  this  moment. 

Hide  Nakajima  had  a  bulldog  stance  accompanied  by  a  decep- 
tively gregarious  grin.  In  a  business  where  players  never  showed 


GAME    OVER 


their  cards,  Nakajima  appeared  to  be  unusually  open.  He  was  a 
spark  plug  in  a  world  of  staid  and  sober  executives. 

When  the  original  Atari  was  formed  in  1972,  Nolan  Bushnell 
had  hired  a  Japanese-American  businessman  to  form  a  subsidiary 
in  Tokyo.  The  businessman  asked  an  attorney  to  help  him  find  a 
general  manager,  and  the  man  had  recommended  his  brother, 
Hide  Nakajima. 

Prior  to  that,  Nakajima  had  been  with  Japan  Art  Paper  Com- 
pany for  seventeen  years,  working  his  way  up  the  corporate  ladder. 
(Coincidentally,  for  generations  Japan  Art  Paper  had  sold  paper  to 
Nintendo  for  hanafuda  playing  cards.)  In  spite  of  a  string  of  pro- 
motions, Nakajima  was  disillusioned  with  the  company.  "I  saw  that 
I  was  just  a  gear,  and  that  no  matter  how  much  I  accomplished,  I 
was  replaceable,"  he  says.  Leaving  the  security  of  the  large  firm 
and  the  three-hundred-year-old  paper  industry,  he  jumped  at  the 
chance  to  work  at  the  small,  entrepreneurial  Atari,  in  an  industry 
that  was  just  being  invented. 

Atari  Japan  imported  games  such  as  "Pong"  and  "Gran  Trak" 
from  its  U.S.  parent  company.  Competing  with  dozens  of  new 
entries  in  the  fledgling  coin-operated  video-game  business,  includ- 
ing Nintendo,  Nakajima  met  the  same  kind  of  resistance  to  video 
games  in  Japan  that  Bushnell  found  in  America,  but  sales  slowly 
grew.  No  matter  how  much  came  in,  however,  the  money  disap- 
peared. According  to  Nakajima,  employees  were  stealing  large 
amounts  of  cash.  The  result  was  that  Atari's  suppliers  were  not 
being  paid  and  the  company  was  nearly  bankrupt.  Nakajima's  boss 
left  the  sinking,  debt-ridden  company  and  Nakajima  was,  by  de- 
fault, left  in  charge.  Nolan  Bushnell  would  later  single  out  the 
Japan  debacle  as  one  of  his  first  huge  mistakes. 

In  meetings  with  Bushnell  and  other  Atari  executives,  Nakajima 
argued  that  the  company  was  salvageable,  but  the  Japan  subsidiary 
had  already  lost  several  hundred  thousand  dollars,  which  Atari 
could  ill  afford  since  it  was  struggling  to  establish  itself  in  the 
United  States.  Nakajima  used  some  of  his  own  savings  to  pay  off 
suppliers  and  keep  Atari  Japan  afloat. 

His  friends  from  the  paper  industry  suggested  kindly  that 
Nakajima  return  to  his  former  job.  He  declined.  He  planned  to  do 
what  he  could  to  stop  the  company  from  sinking;  failing  that,  he 


THE    BIG    SLEEP 


would  go  down  with  it.  Bushnell  felt  he  had  no  choice  but  to  sell 
the  subsidiary,  debt  and  all,  so  Nakajima  made  inquiries. 

Atari's  name  was  valuable,  and  several  coin-op  companies  made 
offers.  Sega,  which  then  made  jukeboxes  and  pinball  machines,  bid 
$50,000.  The  head  of  Namco  (then  still  called  Nakamura  Manufac- 
turing Company)  wanted  Atari  too.  Masaya  Nakamura,  the 
founder,  saw  the  acquisition  as  a  way  to  instantly  expand  his  small 
kiddie-ride  company.  Nakamura  shocked  Bushnell  and  all  other 
potential  bidders  by  offering  to  buy  Atari  Japan  for  $800,000,  six- 
teen times  more  than  Sega  had  offered.  After  negotiations,  the  bid 
was  adjusted  to  $500,050,  still  an  astronomical  amount.  Bushnell 
was  delighted  to  take  the  money,  and  in  1972  Nakamura  got  Atari 
Japan  and  a  debt  that  took  two  years  to  pay  off. 

Hide  Nakajima  planned  to  quit.  He  had  no  intention  of  working 
for  Namco;  it  would  be  worse  than  working  for  the  paper  company 
because  at  least  Japan  Art  Paper  had  prestige.  Nakamura,  how- 
ever, convinced  Nakajima  to  stay  on  for  six  months. 

Assigned  to  build  up  Namco's  international  business,  Nakajima 
succeeded,  increasing  sales  from  $5,000  to  $500,000  within  that 
brief  time,  and  an  astonished  Nakamura  convinced  him  to  stay  on 
longer.  Three  years  later,  Nakajima  decided  he  was  in  the  video- 
game industry  to  stay.  He  found  working  for  Nakamura  to  be 
instructive.  "He  could  be  difficult,  but  he  could  foresee  the  fu- 
ture," Nakajima  says.  "That  was  his  destiny.  Everyone  thought  he 
was  mad  when  he  paid  so  much  for  Atari,  but  it  turned  out  to  be  a 
very  wise  investment." 

The  deal  with  Bushnell  allowed  Nakamura  to  be  the  exclusive 
representative  for  Atari  products  in  Japan  for  ten  years,  and  as  a 
result  Namco  became  one  of  the  largest  video-game  companies  in 
Japan.  Nakamura  bought  rights  to  other  games,  had  others  devel- 
oped in-house,  and  sold  them  by  the  thousands.  He  also  opened 
arcades  that  featured  Atari  games,  and  his  earnings  quintupled. 

Nakamura  promoted  Nakajima  to  executive  vice-president  of 
Atari  Japan  in  1978.  He  also  asked  Nakajima  to  join  Namco's 
board  of  directors.  Later  that  year,  Nakajima  convinced  Nakamura 
to  open  a  subsidiary  of  Namco  in  the  United  States,  and  he  was  put 
in  charge  of  the  project. 

Nakajima  flew  to  California  and,  with  a  small  movie  camera, 


240  GAME    OVER 


filmed  sites  around  the  Bay  Area.  With  Nakamura's  approval  he 
chose  an  office  across  the  street  from  Atari's  old  headquarters  in 
Sunnyvale.  Namco  America  opened  its  doors  in  1978.  To  help  him 
run  the  new  company,  Nakajima  hired  a  young  attorney,  Dennis 
Wood,  away  from  Hewlett  Packard.  From  Sherman,  Texas,  Wood 
had  graduated  from  the  University  of  Montana's  law  school  in 
1974.  After  passing  the  bar,  he  became  a  justice  of  the  peace  in 
Missoula,  Montana,  when  he  was  only  twenty-three.  Later  he 
worked  in  the  legal  department  of  Hewlett  Packard  until  he  ac- 
cepted Hide  Nakajima's  offer.  Namco  America  had  started  with 
two  employees,  Nakajima  and  a  secretary,  and  it  was  ominous  that 
the  third  employee  should  be  an  attorney. 

Nakajima  did  the  coin-op  deals  and  Wood  did  merchandising 
and  licensing.  Wood  licensed  Namco's  Japanese  arcade  games  (in- 
cluding "Pac-Man")  to  companies  such  as  Atari  (in  America)  or 
Bally's  Midway.  He  also  opened  a  merchandising  department  that 
licensed  "Pac-Man"  pillowcases,  pajamas,  and  the  like.  He  brought 
with  him  his  homespun  wit  and  amicable  demeanor.  The  elfish 
attorney  became  Namco  America's  vice-president,  second  to 
Nakajima.  As  the  company  grew,  Wood  was  also  put  in  charge  of 
personnel,  administration,  and  legal  affairs.  The  American  subsid- 
iary brought  in  a  significant  income  for  Namco.  Virtually  all  its 
income  was  pure  profit,  for  there  was  no  overhead.  As  Wood  says, 
"What  overhead?  The  lights.  Our  salaries." 

Namco  America  grew  through  the  early  1980s,  when  Nakamura 
visited  Nakajima  in  the  United  States.  Apropos  of  nothing, 
Nakamura  one  evening  said  that  he  wanted  to  buy  Atari.  Nakajima 
eyed  his  boss  warily. 

"Are  you  serious,  Mr.  Nakamura?"  Nakajima  asked.  "I  don't 
think  it's  possible.  They  are  about  a  hundred  times  bigger  than 
Namco." 

Nakamura  said,  "Hide-san,  you  will  see.  Soon  the  sun  will  re- 
volve around  Namco." 

In  1985,  after  the  Atari  crash,  Warner  sold  off  the  scraps  of  the 
company  that  had  once  grossed  more  than  any  of  the  other  busi- 
nesses in  its  multitentacled  organization.  Steve  Ross,  Warner's  op- 
probrious chairman,  couldn't  get  rid  of  it  fast  enough. 
Nonetheless,  Ross  knew  that  video  games  and  related  technologies 


THE    BIG    SLEEP 


would  be  back,  and  he  retained  interests  in  both  Atari  Corporation 
(25  percent)  and  Atari  Games  (40  percent).  He  sold  Atari  Corp.  to 
Jack  Tramiel,  the  former  chief  of  Commodore.  Tramiel  wanted  a 
computer  company  but  wasn't  interested  in  Atari's  game  division, 
which  he  could  have  had  for  almost  nothing. 

The  result  was  two  Ataris,  "both  of  which  don't  like  each  other," 
says  Dan  Van  Elderen  of  Atari  Games.  "Our  claim  always  was  that 
we're  the  real  Atari— the  original  Atari."  Van  Elderen  says  Tramiel 
resented  Atari  Games  because  it  was  living,  breathing,  thriving 
proof  that  he  had  been  dead  wrong  in  his  decision  to  stay  out  of 
coin-operated  games  and  software. 

When  Atari  Games  was  on  the  block,  Nakamura  told  Nakajima 
it  was  time.  Nakajima,  who  knew  the  Warner  executives,  negoti- 
ated and  got  Atari  Games  for  Nakamura  for  a  little  over  $10 
million.  The  company  had  assets— talented  engineers,  a  plant,  and 
some  successful  coin-op  games  (such  as  "Marble  Madness"  and 
"Gauntlet")— but  it  was  losing  money.  "We  were  buying  the  po- 
tential," Dennis  Wood  says.  Price  Waterhouse  accountants  advis- 
ing Namco  warned  against  the  purchase,  but  Nakamura  went 
ahead.  The  size  of  Namco  America  increased  dramatically;  some 
230  people  came  with  the  new  company.  So  did  a  distribution 
network  and  a  factory  in  Ireland  with  another  seventy  employees. 
Most  important,  though  Namco  was  acquiring  a  company  that  had 
been  badly  managed,  it  made  some  of  the  best  games  in  the  history 
of  the  business. 

The  new  owners  of  Atari  Games  wrestled  the  company  into 
financial  shape,  helped  along  when  "Gauntlet"  became  a  huge 
seller.  Throughout,  Nakamura  and  Nakajima  sparred  over  the  best 
way  to  run  it.  Nakajima  felt  that  his  boss  was  holding  him  back. 
Rather  than  viewing  Atari  as  an  investment,  Nakamura  still  saw 
the  American  company  as  a  competitor  that  he  didn't  want  to  see 
become  too  powerful.  He  also  didn't  like  sharing  ownership  with 
Time  Warner. 

Nakajima  found  negotiating  with  Nakamura  increasingly  frus- 
trating. He  also  was  angry  because  of  Namco's  shoddy  distribution 
of  Atari's  games  in  Japan:  Nakamura  wouldn't  sell  Atari  games  to 
competing  arcades.  On  the  other  hand,  Nakamura  was  fed  up  with 
an  American  subsidiary  outside  his  immediate  control,  so  he 


2  42  GAME    OVER 


agreed  to  sell  Atari  Games  to  Nakajima  and  Time  Warner  in  1987. 
Time  Warner,  Nakajima,  and  other  employees  absorbed  the 
Namco  shares  so  that  Time  Warner  had  roughly  80  percent  and 
Nakajima  and  the  employees'  group  20  percent.  Nakajima  then 
resigned  from  Namco's  board  and  from  his  position  as  president  of 
Namco  America. 

Wood  and  Nakajima,  running  Atari  Games  without  Nakamura's 
meddling,  had  been  watching  the  Nintendo  market,  and  in  1987, 
Wood  proposed  that  they  make  the  leap.  The  Nintendo  business 
was  growing,  and  it  would  be  easy  to  take  advantage  of  it  with 
conversions  of  Atari's  arcade  games.  Atari  Games  was  prevented 
from  entering  the  home  video-game  business  under  its  own  name 
because  of  the  agreement  Warner  had  made  with  Jack  Tramiel. 
They  came  to  a  simple  solution:  they  would  create  a  new  company. 

Nakajima  and  Dennis  Wood  met  in  the  chairman's  office  at  the 
Atari  Games  headquarters  in  Milpitas,  California.  They  were 
joined  by  Dan  Van  Elderen  and  another  executive,  Randy 
Broweleit,  and  together  ironed  out  plans  to  start  a  subsidiary  that 
would  make  games  under  license  for  the  NES.  It  was  named  by 
Nakajima.  The  Japanese  describe  the  go  board  as  the  universe. 
The  central  point  of  the  universe,  the  point  of  the  creation  of  all 
things,  is  the  tengen. 

Broweleit  was  to  run  the  day-to-day  operations  of  Tengen,  which 
he  did  for  over  a  year  before  leaving  to  start  a  company  that 
licensed  games  that  played  on  the  NES.  When  he  left,  Van  Elderen 
took  over  as  Tengen's  chief. 

Dan  Van  Elderen  had  been  with  Atari  longer  than  anyone,  be- 
ginning, when  he  was  only  twenty-three,  as  a  technician— before 
Atari  even  had  an  engineering  department— and  working  on  No- 
lan Bushnell's  assembly  line  building  coin-operated  "Pong"  games. 
He  stuck  with  Atari  through  the  sale  to  Warner,  Warner's  sale  to 
Namco,  and  Namco's  buy-out.  He  had  been  the  senior  vice-presi- 
dent of  research  and  development  before  being  put  in  charge  of 
Tengen. 

Tall  and  powerfully  built,  Van  Elderen  appeared  intimidating 
when  in  fact  he  was  a  soft-spoken,  kind  man  who  had  an  easier 
time  blending  in  with  his  engineers  than  with  his  business  team.  He 
talked  engineer's  talk  more  easily  than  profit  margins  and  market 


THE    BIG    SLEEP 


share.  An  outdoorsman,  he  had  reminders  of  his  favorite  pastime 
throughout  his  office.  There  was  a  wire  sculpture  of  a  fisherman 
and  a  sign  that  read:  the  lord  does  not  subtract  from  the  allot- 
ted time  of  man  the  hours  spent  fishing.  But  in  his  office  there  was 
also  a  glimpse  of  another  side  of  his  nature.  On  the  wall  was  a 
sticker  with  the  word  Nintendo  on  it.  The  word  was  slashed  through 
in  red. 

It  was  not  difficult  for  Tengen  to  convince  Nintendo  to  allow  it  to 
become  a  licensee.  Atari  Games  made  some  of  the  best  arcade 
games,  and  it  was  the  name  most  people  associated  with  video 
games.  Arakawa  believed  it  was  significant:  even  Atari  had  suc- 
cumbed to  Nintendo's  dominance. 

In  mid  1987,  Nakajima  and  Dennis  Wood  met  with  the  top 
Nintendo  executives  at  a  coin-op  industry  show  and  said  they  were 
interested  in  a  license.  Nakajima  and  Wood  said  they  wanted  ex- 
ceptions to  the  licensing  agreement— to  make  more  than  five 
games  a  year,  for  instance. 

As  composed  as  always,  Arakawa  said  that  changes  to  the  basic 
agreement  were  impossible.  He  shrugged  as  if  to  indicate  it  was 
not  personal.  "All  licensees  have  to  be  treated  the  same,"  he 
pointed  out.  He  did  agree  to  have  attorneys  negotiate  some  of  the 
minor  points  in  the  agreement,  but  that  was  as  far  as  he  would 
bend.  Still,  the  Atari  Games  executives  agreed  to  play  by  Nin- 
tendo's rules. 

Atari  Games'  attorneys  worked  with  Nintendo's  on  the  agree- 
ment—"tweaking  it,"  as  Lincoln  puts  it.  Although  it  was  signed  in 
January  1988,  it  was  a  charade.  It  would  turn  out  that  by  then  Hide 
Nakajima  had  already  begun  his  efforts  to  "put  Nintendo  in  its 
place,"  in  the  words  of  an  Atari  executive. 

In  the  spring,  Tengen  representatives,  including  Nakajima,  came 
to  Redmond  for  a  meeting.  Trying  to  coddle  Nakajima— to  smooth 
feathers  that  had  been  ruffled  by  Nintendo's  refusal  to  grant  him 
special  terms— Arakawa  shared  report  after  report,  divulging  "the 
jewels  of  our  business,"  Lincoln  says.  He  supplied  Nakajima  with 
details  of  how  the  business  ran  day  to  day,  of  how  individual  retail- 
ers should  be  handled,  and  much  more.  Arakawa  says  he  went  out 
of  his  way  to  befriend  Nakajima  and  advise  him. 

The  first  Tengen  games  for  the  NES,  announced  at  the  June 


2-4-4  GAME    OVER 


1988  CES,  were  a  conversion  of  the  ever  popular  "Pac-Man,"  a 
terrific  baseball  game  called  "RBI  Baseball,"  and  "Gauntlet,"  con- 
verted from  the  hit  arcade  game.  The  games  had  received  high 
evaluations  from  the  Big  Three  and  GC6,  and  Nakajima  was 
poised  to  sell  many  of  them.  His  timing,  though,  was  unfortunate, 
because  his  entry  into  the  Nintendo  business  occurred  during  the 
worldwide  microchip  shortage.  Prior  to  the  CES,  Nintendo  had 
made  an  announcement  to  all  its  licensees  that  the  chip  shortage 
meant  that  NCL  would  not  be  able  to  fill  their  orders.  Nintendo 
would  apportion  game  cartridges,  treating  all  companies  equally, 
but  they  all  would  get  fewer  games  than  they  wanted. 

Licensees  were  asked  to  estimate  the  number  of  cartridges  they 
would  be  ordering.  From  this  list  Nintendo  calculated  the  number 
of  cartridges  they  should  reasonably  expect.  The  allocations  de- 
pended on  several  factors,  including  a  game's  ratings  and  the  size 
of  a  licensee's  distribution  network.  An  elaborate  system  had  been 
devised,  NOA  claimed,  with  rules  that  applied  to  its  own  games 
too;  orders  of  the  company's  own  games  would  be  cut  back  or 
would  be  postponed  in  order  to  supply  chips  for  a  licensee  with  a 
better  game. 

The  first  time  the  calculations  were  made,  Lincoln  and  Arakawa 
decided  to  personally  call  the  licensees  with  the  results.  They 
thought  they  would  run  through  the  list  in  a  single  morning,  but  it 
took  days;  the  people  at  each  company  begged,  pleaded,  argued, 
flattered,  and  argued  some  more.  It  was  such  a  difficult  process 
that  the  decisions  about  subsequent  allocations  were  sent  in  the 
mail.  Lincoln  jokes,  "Arakawa  and  I  would  run  away  and  hide  so 
that  we  wouldn't  have  to  take  the  heat." 

The  allocation  system,  Arakawa  insisted,  was  as  fair  as  it  could 
have  been.  Some  of  the  licensees  understood,  but  others  felt  Nin- 
tendo was  using  the  shortage  to  manipulate— and,  in  some  cases, 
strangle — them. 

Hide  Nakajima's  orders  for  games  were  halved,  then  halved 
again  by  Nintendo.  Tengen  received  less  than  25  percent  of  its 
initial  order  and,  finally,  a  tenth  of  what  it  claimed  it  could  have 
sold.  "They  are  keeping  supply  low  to  keep  prices  high,"  Randy 
Broweleit  charged. 


THE    BIG    SLEEP 


The  head  of  the  independent  Software  Publishers  Association, 
Ken  Wasch,  charged  in  December  1988,  "The  SPA  believes  that 
Nintendo  has,  through  its  complete  control  and  single  sourcing  of 
cartridge  manufacturing,  engineered  a  shortage  of  Nintendo- 
compatible  cartridges.  Retailers,  consumers  and  independent  soft- 
ware vendors  have  become  frustrated  by  the  unavailability  of  many 
titles  during  the  holiday  season,  and  believe  that  these  shortages 
could  be  prevented  by  permitting  software  vendors  to  produce 
their  own  cartridges." 

Dan  Van  Elderen  asked  if  Nintendo  would  allow  his  company  to 
receive  larger  orders  if  he  found  sources  for  the  scarce  chips.  Nin- 
tendo agreed,  on  the  condition  that  Tengen  pay  the  difference  if 
the  chips  were  more  expensive.  Other  companies  went  the  same 
route;  Acclaim  searched  for  chips  too.  Van  Elderen  found  a  source 
and  informed  Nintendo,  whose  representative  said  the  company 
would  evaluate  the  chips  in  Japan  and,  if  they  were  acceptable, 
inform  Tengen  how  much  it  would  pay  for  them.  "They  would  tell 
us"  Dennis  Wood  says.  But  the  pricing  issue  never  came  up,  be- 
cause Nintendo  decided  the  chips  were  unacceptable. 

Wood  claims  that  Nintendo  rejected  the  chips  because  they  were 
not  made  in  Japan,  and  that  NOA  said  that  American  or  Korean 
chips  were  not  of  a  high  enough  quality.  "We're  talking  about  chips 
for  games,  not  for  a  Cray  computer,"  Wood  steamed.  "You  don't 
have  to  wear  a  conical  hat  with  the  sign  of  the  zodiac  on  it  in  order 
to  make  these  chips  nowadays.  It's  not  quite  as  simple  as  going  to  a 
hardware  store  and  picking  up  a  bag  of  nails  of  different  sizes,  but 
we  are  not  far  from  that."  He  further  charges  that  Atari  Games 
contacted  Sharp,  the  Japanese  electronics  company,  which  said 
that  chips  were  available— until  Sharp  learned  they  were  to  be 
used  for  Nintendo-compatible  games.  Then  Sharp  recanted;  there 
were  no  chips  after  all. 

Acclaim,  however,  did  find  chips  that  NCL  approved,  although 
not  until  1989,  according  to  Greg  Fischbach.  Nintendo  insisted 
that  the  chips  most  other  companies  found  were  of  inferior  quality. 
Yamauchi  and  Arakawa  refused  to  accept  them,  insisting  that  they 
were  more  concerned  about  the  long-term  integrity  of  products 
with  the  Nintendo  quality  seal  than  the  short-term  profits  of  licen- 


246  GAME    OVER 


sees.  "From  our  point  of  view,  we  gave  everything  we  could," 
Lincoln  says.  "People  were  going  to  have  to  make  millions,  not 
zillions." 

"It  really  set  us  off,"  Wood  says.  "We  knew  then  that  we  were 
being  jerked  around." 

Van  Elderen  was  incensed.  "Frankly,  the  historical  roots  of  this 
company  are  Atari.  Atari!"  he  says.  "We  created  this  industry  eigh- 
teen years  ago,  and  we  weren't  going  to  be  told  by  anyone  that  we 
couldn't  play  at  our  own  game." 

"We  didn't  know  what  was  going  to  happen,"  Wood  admits, 
"only  that  Nintendo  could  literally  strangle  us  with  a  silk  scarf." 
Van  Elderen  says  his  company  was  backed  into  a  corner.  "It  be- 
came obvious  that  we  had  to  make  some  different  arrangements, 
and  that's  when  we  decided  to  work  around  Nintendo." 

In  fact,  the  Atari  Games/Tengen  chiefs  had  decided  long  before 
to  work  around  Nintendo.  The  efforts,  begun  even  before  the  chip 
shortage,  were  kept  secret  for  almost  a  year,  Van  Elderen  admits, 
even  though  Atari  Games  continued  to  work  with  NOA  as  if  every- 
thing were  "all  sweetness  and  light,"  as  Howard  Lincoln  puts  it. 

In  August  1988,  Hide  Nakajima  and  Randy  Broweleit  met 
Arakawa  and  Lincoln  in  the  Donkey  Kong  conference  room  to 
discuss  the  strategy  for  selling  Tengen's  three  initial  games.  Then 
the  representatives  of  the  two  companies  played  golf  at  Arakawa's 
club,  and  the  Arakawas  gave  the  fateful  dinner  party  for  Nakajima 
and  Broweleit  at  their  new  home  in  Medina. 

The  dinner  progressed,  but  something  odd  was  in  the  air.  When 
Howard  Lincoln  accompanied  Yoko  Arakawa  to  the  kitchen  to 
help  with  drinks,  she  whispered  to  him,  "What's  going  on  with 
these  guys?" 

"We  couldn't  put  our  finger  on  it,"  Lincoln  says. 

Apparently  oblivious,  Arakawa,  who  had  had  a  couple  of  glasses 
of  wine,  fell  asleep  when  the  gathering  moved  outside  after  dinner. 
Even  though  he  awoke  in  time  to  say  good  night  to  his  guests, 
Nakajima  viewed  the  Nintendo  president  differently.  Everyone 
pretended  that  nothing  had  happened,  but  something  was  deeply 
wrong. 

In  October  Nakajima  called  to  invite  the  Arakawas  to  play  golf 
at  Pebble  Beach.  There  were  only  subtle  hints  that  anything  was 


THE    BIG    SLEEP 


amiss.  Nakajima  was  chatty  and  amiable,  but  amidst  the  social- 
izing, he  asked  Arakawa  more  questions  about  Nintendo's  busi- 
ness. Arakawa  was  wary,  but  he  answered  them  because  he  was 
trying  to  make  up  for  the  dinner  party. 

Back  in  1986  Dennis  Wood  had  had  attorneys  go  over  Nin- 
tendo's licensing  agreement  to  determine  if  there  was  a  legal  way 
Tengen  could  produce  and  sell  games  that  would  play  on  the  NES 
without  going  through  Nintendo.  The  lawyers  deduced  that  Tengen 
could  do  so  if  there  was  no  infringement  on  Nintendo's  patents  or 
copyrights.  This  meant  that  Tengen  would  have  to  come  up  with  its 
own  chip  that  defeated  the  security  system— that  is,  Tengen  would 
have  to  unlock  the  lock-out  chip. 

On  the  assumption  that  customers  wouldn't  care  whether  or  not 
Tengen  was  a  Nintendo  licensee,  that  stores  just  wanted  product, 
and  that  customers  would  buy  good  games  regardless  of  the  Nin- 
tendo quality  seal,  Nakajima  had  a  group  of  engineers  analyze  the 
Nintendo  security  system.  They  found  that  the  security  chips  in  the 
hardware  and  software  were  identical  chips  that,  basically,  commu- 
nicated with  each  other.  As  long  as  they  were  communicating,  the 
system  operated;  if  they  weren't,  the  system  froze  up.  The  engi- 
neers then  tried  but  failed  in  their  efforts  to  replicate  the  technol- 
ogy. Atari  engineer  Pat  McCarthey  concluded,  "Unless  there  is  a 
specific  profit  motivation  .  .  .  I  recommend  that  the  investigation 
end  here."  There  was,  the  court  would  later  find,  a  profit  motiva- 
tion, and  Atari  did  not  discontinue  the  project. 

Atari  had  outside  engineers  try  to  reverse-engineer  the  chip — 
that  is,  "deprocess"  it.  Engineer  Donald  Paauw  was  assigned  the 
task  of  analyzing  "peeled"  or  dissected  chips  in  an  effort  to  under- 
stand the  program  embedded  within,  but  he  did  not  succeed.  Fi- 
nally, after  the  engineers  failed  to  figure  out  the  chip  by  reverse 
engineering,  they  were  given  some  help. 

Nintendo's  security  system  was  the  subject  of  two  protected  in- 
tellectual properties.  NOA  had  filed  for  a  patent  on  the  lock-and- 
key  system  itself  in  1985— number  4,799,635,  entitled  "System  for 
Determining  Authenticity  of  an  External  Memory  Used  in  an  In- 
formation Processing  Apparatus." 
The  other  piece  of  intellectual  property  that  Nintendo  protected 


GAME    OVER 


was  the  song  the  security  chips  "sang,"  the  computer  code,  which 
was  known  as  the  10NES  and  was  registered  at  the  U.S.  Copyright 
Office.  Copyright  protects  original  works — songs,  literary  works, 
computer  programs — as  opposed  to  inventions  or  formulas,  which 
are  covered  by  the  Patent  Office.  Initially  Nintendo  had  no  plans  to 
register  the  copyright  because  the  code  itself  would  have  to  be 
placed  in  the  Copyright  Office's  unpublished-works  storage  facil- 
ity, in  Landover,  Maryland,  but  an  attorney  specializing  in  copy- 
right law  advised  Howard  Lincoln  that  the  code  would  be  secure 
Although  individuals  could  examine  files  in  the  Copyright  Office, 
no  one  was  allowed  to  remove  anything;  even  note-taking  was. 
prohibited.  Reassured,  Lincoln  decided  to  submit  the  program,  so 
the  entire  computer-generated  code,  indecipherable  incantations 
to  anyone  who  didn't  speak  computer  language,  was  locked  away 
in  a  file  inside  a  storage  vault  in  Landover,  Maryland. 

There  was,  in  fact,  one  legitimate  way  for  someone  to  get  access 
to  a  copyrighted  code.  An  affidavit  could  be  filed  indicating  that 
the  work  was  the  subject  of  litigation.  With  the  affidavit,  a  copy  of  a 
work  could  legally  be  removed  from  the  office.  The  odd  logic  went 
like  this:  a  company  being  sued  for  violating  a  copyright  couldn't 
defend  itself  unless  it  could  review  the  copyrighted  material.  It  was 
explicitly  stated  that  no  one  was  allowed  to  use  the  material  for  any 
purpose  other  than  this. 

Atari  Games  hired  a  local  Virginia  law  firm  to  get  the  code.  The 
firm  may  have  believed  that  the  request  was  legitimate,  for  it  had 
been  told  that  Nintendo  had  sued  Atari  Games.  Ten  days  after 
Atari  Games  signed  its  agreement  with  Nintendo,  on  January  28, 
an  employee  of  the  law  firm  filed  an  affidavit  in  the  U.S.  Copyright 
Office.  The  affidavit,  filed  on  behalf  of  the  Virginia  firm's  client, 
Atari  Games,  indicated  that  a  copy  of  the  code  was  required  for 
pending  proceedings  under  way  in  U.S.  District  Court,  in  the 
Northern  District  of  California.  The  form  indicated  that  the  pro- 
gram was  "to  be  used  only  in  connection  with  the  specified  litiga- 
tion." 

The  code  was  sent  over  from  the  Landover  storage  facility  to  the 
Copyright  Office.  An  employee  of  the  law  firm  headed  up  to  room 
402  and  waltzed  out  with  a  copy  of  the  10NES  copyright  in  his 
briefcase. 


THE    BIG    SLEEP  2  4  3 


No  suit  had  been  filed  against  Atari,  and  none  would  be  filed 
until  November  1989,  almost  two  years  later.  Atari  would  later 
defend  the  action  by  claiming  that  litigation  was  imminent  at  the 
time,  but  the  judge  who  would  preside  over  the  lawsuit  refused  this 
defense.  The  court  said,  "Atari's  purpose  in  obtaining  the  program 
in  early  1988  was  commercial  rather  than  legal."  Tengen's  Van 
Elderen  later  told  reporters  that  his  team  had  succeeded  in  repro- 
ducing the  lock-out  chip  by  the  process  of  reverse  engineering- 
unraveling  the  design— when,  in  fact,  they  had  taken  it  from  the 
copyright  documents. 

Tengen's  Silicon  Valley  R&D  division  was  in  a  series  of  back 
offices  of  the  Atari  Games  building,  which  was  set  atop  what  had 
once  been  an  orchard  of  prune  trees.  There  a  team  of  engineers 
pored  over  the  illegally  obtained  code  and  worked  to  create  their 
clone  chip.  By  comparing  the  information  obtained  from  the  Copy- 
right Office  with  copies  of  the  binary  code  read  through  micro- 
scopic examination  of  "peeled"  chips,  the  engineers  were  able  to 
correct  and  verify  their  version  of  the  program. 

With  the  documents  in  hand,  the  Atari  engineers  had  only  a 
slightly  more  difficult  time  making  an  exact  copy  of  the  Nintendo 
security  system  than  they  would  have  had,  say,  assembling  a  bicycle 
that  came  with  clear  instructions.  Atari  engineers  re-created  the 
Nintendo  chip  with  the  embedded  incantation  that  allowed  it  to 
sing  to  the  chip  inside  the  NES,  and  dubbed  their  version  the 
Rabbit.  Installing  a  prototype  Rabbit  into  a  game,  they  plugged  it 
into  an  NES  system,  and  pushed  the  power  button  to  fire  it  up. 
Immediately  the  TV  monitor  lit  up  with  the  Tengen  logo,  and  by 
August  1988,  when  Hide  Nakajima  was  at  dinner  at  the  Arakawa 
home  in  Medina,  Atari  Games  was  producing  cartridges  on  its  own 
that  incorporated  the  Rabbit. 

At  the  end  of  the  year,  on  December  12,  Atari  Games  filed  suit 
against  Nintendo  in  U.S.  District  Court  in  San  Francisco.  Essen- 
tially the  suit  claimed  that  Nintendo  was  succeeding  at  the  expense 
of  all  potential  competitors  by  means  of  monopolistic  and  exclu- 
sionary business  practices.  "Through  the  use  of  a  technologically 
sophisticated  lock-out  system'  .  .  .  Nintendo  has,  for  the  past 
several  years,  prevented  all  would-be  competitors,  including  Atari, 
from  competing  with  it  in  the  manufacture  of  video-game  car- 


250  GAME    OVER 


tridges  compatible  with  the  Nintendo  home  video-game  machine," 
the  document  charged.  "The  sole  purpose  of  the  lock-out  system  is 
to  lock  out  competition."  The  suit  further  claimed  that  the  lock- 
out chip  and  Nintendo's  monopoly  of  the  industry  interfered  with 
competitive  pricing,  allowing  Nintendo  to  control  the  supply  and 
prices  of  cartridges  available  to  consumers.  "The  impact  of  Nin- 
tendo's conduct  has  been  to  block  any  competition  in  the  manufac- 
turing market  for  video-game  cartridges  compatible  with  the 
Nintendo  machine,"  the  suit  stated. 

In  the  complaint,  Atari  Games  announced  that  it  had  developed 
the  functional  equivalent  of  a  key  to  "unlock  the  lock-out  system," 
and  said  it  was  beginning  to  compete  with  Nintendo. 

In  early  December  1988,  Nintendo  held  its  grandest  Christmas 
party  ever.  There  were  tables  of  freshly  carved  roast  beef  and 
turkey,  and  bowls  of  spiked  punch  and  endless  champagne.  Em- 
ployees and  their  spouses  danced  to  the  music  of  a  big  band.  The 
following  morning,  when  the  staff  was  suffering  a  collective  hang- 
over, one  of  the  company's  public  relations  people  called  Howard 
Lincoln.  "You're  not  going  to  believe  this,"  he  told  Lincoln,  "but 
there's  something  coming  over  the  wire  that  you  ought  to  know 
about.  Tengen  is  having  a  press  conference  and  is  announcing  that 
they  reverse-engineered  your  security  chips  and  are  going  to  start 
making  games  for  the  NES  without  a  license.  They've  filed  a  law- 
suit for  $100  million  against  you  for  violation  of  the  antitrust  laws." 

In  the  press  release,  Atari  Games'  Dennis  Wood  took  the  offen- 
sive. "Who  gave  Arakawa,  Lincoln,  and  Main  the  power  to  decide 
what  software  the  American  public  can  buy?"  he  asked. 

Arakawa,  whose  hangover  put  Lincoln's  to  shame,  heard  from 
his  partner.  "Guess  what  those  sons  of  bitches  did,"  Lincoln  said. 
The  two  of  them  remembered  the  golf  game  at  Pebble  Beach,  the 
dinners— all  the  times  Nakajima  had  pumped  them  for  details 
about  the  Nintendo  business— and  all  of  the  information  they  had 
stupidly  provided.  "We'd  been  scammed,"  Lincoln  says. 

Faxes  flew  back  and  forth  across  the  Pacific  Ocean.  When  he  was 
told,  Yamauchi  said  he  wanted  Atari  stopped,  whatever  it  took. 

Arakawa,  Lincoln,  and  Peter  Main  met  to  decide  how  to  re- 
spond. They  agreed  that  an  immediate  response  was  critical;  if  they 


THE    BIG    SLEEP  25  1 


could  stop  retailers  from  selling  Tengen's  games  and  simultane- 
ously go  after  it  for  violating  the  agreement,  Nintendo  would  suffer 
little  damage.  They  also  concurred  that  they  had  to  learn  how 
Atari  had  broken  the  security  system.  Later,  when  they  did,  Lin- 
coln said,  "They  entered  into  a  contracting  relationship  with  us 
knowing  they  were  going  to  screw  us.  They  were  trying  to  reverse- 
engineer  from  the  start  and  they  were  getting  nowhere.  They  aban- 
doned the  reverse-engineering  project  and  all  of  a  sudden  our 
source  code  pops  up.  Bang.  There  is  a  lot  more  to  this." 

The  morning  of  the  Atari  Games  press  conference,  Nakajima 
called  Arakawa.  He  said,  "I  guess  you  heard  what's  going  on."  He 
said  he  wanted  to  talk  in  person.  "We  expected  to  be  sued," 
Nakajima  said  afterward,  "but  I  thought  I  might  be  able  to  settle 
things  before  they  escalated."  When  the  two  men  met  at  the  Seat- 
tle-Tacoma  airport  the  following  day,  Arakawa  held  back  his  anger 
in  order  to  hear  what  Nakajima  had  to  say. 

Nakajima  seemed  tense  and  awkward.  He  told  Arakawa  he  was 
against  the  tactic  his  company  had  used.  He  blamed  others  at  Atari 
Games  and  said  that  it  would  not  have  gone  this  far  if  Nintendo 
had  been  more  flexible.  "Let  us  do  our  own  manufacturing," 
Nakajima  said.  He  indicated  that  he  was  still  open  to  being  a 
licensee  if  Nintendo  would  give  in,  and  that  Atari  Games  would 
withdraw  its  lawsuit.  Arakawa  walked  away. 

After  the  meeting,  Arakawa  reported  to  Lincoln  what  Nakajima 
had  said.  Lincoln  shook  his  head.  "Now  I  understand  the  look  on 
Nakajima's  face  when  you  fell  asleep  [at  the  dinner  party].  The 
contempt/'  he  told  Arakawa.  He  said  Nakajima  thought  he  was  the 
stronger  man,  and  that  he  saw  Arakawa  as  nothing  more  than 
the  vain  and  disrespectful  son-in-law  of  Hiroshi  Yamauchi.  Lincoln 
now  says,  "I  thought  to  myself,  you  have  no  idea  what  you  have 
taken  on:  a  tiger  who  will  skin  you  piece  by  piece." 

A  battle  for  hundreds  of  millions  of  dollars  ensued.  Tengen  tried 
to  sell  its  games — notably  lacking  the  Nintendo  quality  seal — and 
NOA  pulled  out  all  stops  in  its  attempt  to  stop  it.  Posing  as  a  David 
against  the  Goliath  of  Nintendo,  Tengen  fought  viciously. 

Nintendo  filed  a  twofold  countersuit  almost  immediately,  charg- 


GAME    OVER 


ing  Atari  Games  with  "the  fraudulent  inducement"  of  Nintendo  to 
enter  into  the  licensing  agreement  and  with  the  sale  of  unautho- 
rized and  unsupported  games.  It  claimed  that  Atari  Games  vio- 
lated the  Racketeer  Influenced  and  Corrupt  Organization  Act 
(RICO)  by  creating  Tengen  as  a  front  company  in  order  to  defraud 
Nintendo.  In  good  faith  NOA  had  given  substantial  marketing  and 
technical  support  for  the  Tengen  NES  cartridges.  Then,  the  com- 
plaint continued,  "having  achieved  its  goal  of  strong  public  identi- 
fication with  the  games  and  packaging  with  Nintendo,  beginning 
sometime  in  late  December  [1988]  or  early  January,  Tengen  com- 
menced selling  unauthorized  versions  of  these  same  games." 

Part  of  Nintendo's  lawsuit  claimed  that  Atari  Games,  needing 
more  than  the  security  system  in  order  to  go  after  Nintendo's 
market,  had  also  had  to  learn  how  the  Nintendo  business  worked. 
Because  Atari  Games  had  a  Nintendo  license,  it  was  given  all  the 
information  the  other  licensees  had,  but  because  of  Nakajima's 
personal  relationship  with  Arakawa,  Atari  Games  was  also  given 
detailed  information  about  retailers.  As  a  licensee,  it  had  no  trou- 
ble acquiring  distribution.  As  a  result,  Tengen's  Nintendo  business 
grew  to  about  $40  million  a  year  for  Atari  Games — although,  says 
Dennis  Wood,  unimpeded  by  Nintendo  it  would  have  been  hun- 
dreds of  millions  of  dollars  a  year. 

The  press  saw  larger  ramifications  in  this  litigation.  "A  verdict 
against  Nintendo  might  prohibit  the  company's  use  of  the  lock-out 
chip  in  its  control  decks,  creating  opportunities  for  any  indepen- 
dent software  developer  who  wished  to  design  games  for  use  on 
the  Nintendo  machine,"  said  an  article  in  The  New  York  Times  in 
March  1989.  "A  verdict  in  favor  of  Nintendo  would  probably  have 
a  spillover  effect  into  the  personal-computer  industry,  where  it 
could  have  a  chilling  effect  on  the  free  flow  of  ideas  and  innova- 
tions that  have  characterized  that  market  since  its  inception." 

The  lawsuit  was  only  the  start  of  Nintendo's  effort  to  fight 
Tengen.  Nakajima  was  informed  that  his  company  would  not  be 
allowed  into  the  massive  Nintendo  booth  at  the  January  1989  Con- 
sumer Electronics  Show.  Nintendo  had  its  largest  presence  yet  at 
this  show:  its  "booth"  was  a  40,000-square-foot,  black,  high-tech 
structure  that  passersby  called  the  Death  Star.  Inside  were  lavish 


TH  E    BIG    SLEEP 


displays  by  Nintendo  and  its  licensees.  It  was  as  if  the  Death  Star 
housed  the  legions  of  Nintendo  loyalists  while,  outside  the  gates, 
the  infidels — Tengen  and  other  Nintendo  competitors— were 
poised  in  ramshackle  encampments. 

Nintendo  executives  also  decided  to  tighten  the  screws  on 
Tengen  by  going  directly  to  retailers,  sending  them  a  letter  in  which 
NOA  threatened  to  sue  any  company  carrying  Tengen  games.  On 
behalf  of  Nintendo,  John  Kirby  wrote  Charles  Lazarus,  chairman 
and  CEO  of  Toys  "R"  Us,  on  January  24,  1989,  "If  your  company 
handles  products  which  infringe  Nintendo's  patent  or  other  intel- 
lectual property  rights,  Nintendo  intends  to  avail  itself  of  the  full 
range  of  its  legal  remedies."  When  he  did  not  hear  from  Lazarus 
immediately,  Kirby  wrote  again  six  days  later.  Toys  "R"  Us  had  to 
"cease  and  desist"  its  sale  of  Tengen  cartridges  and  reply  by  Febru- 
ary 1.  An  attorney  for  Lazarus  wrote  back  that  the  company  would 
comply.  An  article  in  The  American  Lawyer  in  April  1990  reported 
that  Kirby  faxed  back  still  another  letter.  "I  understand  from  your 
letter  that  Toys  is  immediately  removing  the  product  from  the 
shelves  in  all  its  stores.  .  .  ."  it  read.  "It  is  vitally  important  that 
this  be  confirmed  to  me  immediately.  I  will  call  you  at  4  p.m.  today 
...  to  confirm  this  fact.  Needless  to  say,  we  have  had  investiga- 
tors purchasing  the  product  at  various  Toys  'R'  Us  stores  and  they 
are  being  instructed  to  return  to  those  stores  at  5  p.m.  today." 

Atari  Games  sought  and  won  a  preliminary  injunction  to  stop 
Nintendo  from  threatening  dealers,  but  the  decision  was  reversed 
on  appeal.  Either  way,  Nintendo  had  made  its  point,  and  it  contin- 
ued its  campaign  of  intimidation.  Some  of  it  was  carried  on  in 
court,  some  of  it  by  less  overt  means.  "Companies  would  not  carry 
our  games  because  there  was  pressure  from  Nintendo  which  could 
jeopardize  their  business,"  Nakajima  says.  "Even  the  big  compa- 
nies like  Toys  'R'  Us  couldn't  stand  up  to  them."  Dan  Van  Elderen 
claims  the  intimidation  was  subtle  but  effective.  A  Nintendo  rep 
would  say  quietly,  "You  know,  we  really  like  to  support  those  who 
support  Nintendo,  and  we're  not  real  happy  that  you're  carrying  a 
Tengen  product."  Then,  after  a  pause:  "By  the  way,  why  don't  we 
sit  down  and  talk  about  product  allocations  for  next  quarter?  How 
many  'Super  Marios'  did  you  say  you  wanted?"  Van  Elderen  says 


GAME    OVER 


he  had  distribution  in  the  top  fifteen  retailers  in  the  country  before 
these  threats,  but  that  every  one  of  them  subsequently  dropped 
Tengen. 

It  was  certainly  true  that  few  retailers  would  risk  Nintendo's 
threat  of  a  lawsuit  against  them.  Beyond  that,  retailers  were  be- 
holden to  Nintendo  for  the  steady  supply  of  product,  which  in 
some  cases  represented  their  entire  profit  margin.  If  NOA  held 
back  supply  of  a  hot  game,  customers  would  flock  to  competitors 
across  town,  or  even  in  other  towns.  No  company  had  ever  been  in 
this  position,  which  meant  that  none  had  ever  had  such  clout. 
Despite  repeated  denials,  Nintendo  exercised  it  without  much  deli- 
cacy, even  when  the  court  enjoined  it  from  suing  retailers  while  the 
suit  with  Atari  Games  was  pending.  "If  a  retailer  carried  Tengen 
games,  their  Nintendo  allocations  would  suddenly  disappear,"  a 
representative  of  one  retailer  charged.  "Since  it  was  illegal,  there 
were  always  excuses:  the  truck  got  lost,  or  the  ship  from  Japan 
never  arrived." 

The  upshot  of  real  or  imagined  intimidation  was  that  Toys  "R" 
Us,  Bradlees,  Target,  Wal-Mart,  and  most  other  large  retailers  re- 
fused to  carry  Tengen's  or  any  other  unauthorized  games.  Since 
retailers  wouldn't  carry  them,  it  was  pointless  for  companies  to 
make  them.  Nintendo  had  made  its  point.  The  head  of  one  soft- 
ware firm  told  The  American  Lawyer  that  he  had  been  "at  numer- 
ous meetings  of  conspirators"  who  wanted  to  get  around 
Nintendo's  system  and  that  they  all  "chickened  out."  The  reason: 
"You  don't  fuck  with  a  nine-hundred-pound  gorilla." 

Al  Chaikin,  CEO  of  Circus  World  Toys,  with  328  stores  across 
the  country,  who  admitted  that  Nintendo  was  "the  most  sought- 
after  product  in  the  business  today,"  also  revealed  how  the  com- 
pany worked.  Tengen's  games  were  popular,  he  told  the  court  in  a 
deposition  in  1990,  and  he  felt  that  they  were  good  products.  He 
nonetheless  succumbed  to  pressure  when  Nintendo  threatened  to 
sue  companies  that  carried  the  games.  After  receiving  a  threaten- 
ing letter,  Chaikin  responded  to  John  Kirby  in  a  letter  he  sent  in 
June  1990:  "Your  threats  to  take  action  against  us  before  Nin- 
tendo's dispute  with  Atari  Games  can  be  decided  by  the  Court 
leaves  us  no  choice  but  to  discontinue  carrying  Tengen  cartridges. 
...  To  that  end,  and  to  insure  uninterrupted  supply  of  Nintendo 


THE    BIG    SLEEP  255 


products  to  us  in  the  ordinary  course  of  business,  we  are  discontin- 
uing our  purchase  of  Tengen  cartridges.  Inventory  already  on  store 
shelves  will  not  be  replenished." 

Kirby  was  not  placated,  writing  back  to  Chaikin's  attorney:  "I  am 
very  pleased  that  Mr.  Chaikin  has  consulted  with  counsel  with 
respect  to  my  letter.  .  .  .  However,  both  my  client  and  I  find  the 
tone  and  substance  of  his  response  thoroughly  inappropriate.  .  .  . 
I  do  not  accept  his  statements  which  indicate  that  he  intends  to 
respect  these  rights  in  the  future  only  to  please  Nintendo  rather 
than  as  an  acknowledgement  of  the  legal  rights  of  Nintendo  as  to 
which  you  and  he  have  apparently  made  a  decision." 

Chaikin  felt  the  squeeze  in  a  way  that  threatened  his  entire 
operation.  In  the  deposition,  he  charged  that  Nintendo  had 
changed  its  credit  terms  with  Circus  World  because  he  carried 
Tengen  games.  Nintendo  had  previously  allowed  Circus  World 
Toys  credit,  but  then  changed  to  cash  in  advance.  An  attorney  for 
Atari  Games  asked  him,  "[Then]  was  there  a  time  when  you  ceased 
dealing  with  Tengen  products,  and  shortly  thereafter  Nintendo  af- 
forded Circus  World  better  credit  terms?" 

Chaikin  responded,  "Yes,  there  was." 

Stuart  Kessler,  a  vice-president  for  the  Ames  department  stores, 
was  also  deposed  by  Atari  Games.  Ames  (and  its  Zayre  division), 
with  461  retail  outlets,  had  been  doing  about  $10  million  a  year  in 
Nintendo  business.  In  a  letter,  after  NOA  threatened  Ames  for 
carrying  Tengen  games,  Kessler  wrote  to  Howard  Lincoln:  "We 
value  our  relationship  with  Nintendo  and  would  do  nothing  to 
jeopardize  our  future  together." 

Lincoln  had  written  to  another  Ames  vice-president,  Earl  M. 
Spector:  "Ames  has  known  for  more  than  one  year  that  Nintendo 
considers  the  sale  of  unlicensed  Tengen  video  game  cartridges  for 
play  on  the  Nintendo  Entertainment  System  to  be  a  violation  of  its 
patent  rights.  Ames  has  continued  to  sell  Tengen  cartridges  in 
blatant  disregard  of  Nintendo's  rights.  In  light  of  Ames'  decision  to 
sell  infringing  cartridges,  Nintendo  has  decided  that  it  will  cease 
doing  any  business  with  Ames.  Henceforth,  any  purchase  orders 
submitted  by  Ames  will  be  rejected."  The  letter  was  signed  by 
Lincoln,  "Very  truly  yours  .  .  ." 

Ames  was  cut  off  in  August  1989. 


256  GAME    OVER 

Meanwhile,  in  preliminary  hearings  of  the  lawsuits,  Atari  main- 
tained that  the  code  it  had  received  from  the  Copyright  Office  had 
nothing  to  do  with  its  ability  to  reverse-engineer  the  security  sys- 
tem. The  judge — Fern  Smith,  of  the  U.S.  District  Court  for  the 
Northern  District  of  California  in  San  Francisco — refused  to  be- 
lieve this.  In  a  strong  opinion  she  wrote  in  March  1991,  when 
granting  Nintendo's  request  for  a  preliminary  injunction  against 
Atari,  she  lambasted  Atari  for  thievery.  Her  conclusion  was  made 
after  she  compared  the  source  code  that  Atari's  engineers  suppos- 
edly arrived  at  with  Nintendo's  code  as  received  from  the  Copy- 
right Office.  They  were  almost  identical.  Atari's  Rabbit  code 
included  far  more  information  than  was  necessary  to  make  the 
chip  work.  Had  Atari  actually  created  it  independently,  there 
would  almost  certainly  have  been  more  variation. 

Atari  Games  had  hurt  itself,  perhaps  irreparably,  by  securing  the 
code  from  the  Copyright  Office  under  false  pretenses.  "Atari  lied 
to  the  Copyright  Office  in  order  to  obtain  the  copyrighted  10NES 
program,"  Judge  Smith  wrote.  "The  court  disapproves  of  Atari's 
argument  that  Nintendo's  subsequent  claims  of  infringement  ret- 
roactively justify  dishonesty.  ..." 

In  the  conclusion  of  her  opinion,  Judge  Smith  prohibited  Atari 
from  copying,  selling,  or  using  Nintendo's  copyrighted  computer 
program  in  any  way.  She  ordered  Atari  to  halt  marketing,  distrib- 
uting, or  selling  its  NES-compatible  cartridges,  and  to  recall  all  its 
product  in  stores.  Although  it  was  far  from  the  end  of  the  litiga- 
tion, the  court  also  indicated  that  Nintendo  had  the  right  to  "ex- 
clude others  and  reserve  to  itself,  if  it  chooses,"  the  right  to  sell 
game  cartridges.  The  entire  industry  watched  the  decision  spell- 
bound, viewing  it  as  a  body  blow  to  competitors  who  had  hoped  to 
challenge  Nintendo. 

In  early  1989  Atari  Games  filed  a  countersuit  to  Nintendo's 
countersuit,  this  one  accusing  NOA  of  infringing  on  one  of  its 
patents.  "Nintendo  built  its  business  on  borrowed  technology," 
Dan  Van  Elderen  says.  The  original  Atari  had  patents  on  all  kinds 
of  devices  in  all  video-game  systems — motion  technologies  and 
circuitry,  for  example.  Although  the  company  had  never  pursued 
the  myriad  companies  that  had  built  systems  based  on  those  tech- 


THE    BIG    SLEEP  2  5  7 

nologies,  it  now  tried  everything  it  could  against  Nintendo.  "The 
first  time  we  hauled  the  patents  out  as  a  weapon  was  with  Nin- 
tendo," Van  Elderen  admits. 

Atari  Games  was  not  alone  in  suing  Nintendo  for  patent  in- 
fringements. Magnavox,  which  had  patents  from  its  early  research 
in  video  games,  charged  Nintendo  with  infringing  a  patent  that  had 
to  do  with  on-screen  game  play  (the  technology  that  caused  the 
caroming  of  balls  or  bullets  off  walls  or  enemies).  Another  com- 
pany, Alpex  Computer,  sued  over  infringement  of  a  patent  related 
to  the  relationship  between  video-game  microprocessors,  memory 
chips,  and  the  television  screen;  and  an  inventor  named  Jan  Coyle 
sued  for  infringement  of  his  patent  on  technology  behind  the 
NES's  color  encoding.  Nintendo  settled  with  Magnavox  and  Coyle. 
Alpex  claimed  that  Nintendo  was  using  its  patented  technology  in 
its  system  and  in  more  than  150  games.  This  suit,  unresolved 
through  1992,  could  prove  expensive  for  Nintendo.  The  Atari 
Games  suit,  however,  could  cost  Nintendo  even  more  and  set  a 
precedent  because  its  ability  to  control  software  for  the  NES  was  at 
stake. 

Howard  Lincoln's  adversary  at  Atari  Games,  Dennis  Wood, 
planned  obsessively  the  many  fronts  of  his  attack.  He  sat  in  his 
office  sipping  the  kukicha  poured  by  his  assistant,  June  Yamamoto, 
lifting  the  fragile  porcelain  cup  to  his  lips  and  blowing  across  the 
hot  liquid.  "We  will  not  give  up,"  he  said,  even  though,  as  he 
admitted,  "they  keep  hitting  us  every  time  we  stand  up." 

Another  significant  case  was  brought  against  Nintendo  by  Jack 
Tramiel  and  his  son,  Sam,  respectively  the  chairman  and  president 
of  Atari  Corp.  The  Tramiels  sued  Nintendo  for  $160  million  for 
violation  of  antitrust  laws.  As  a  hardware  manufacturer  (it  released 
follow-up  systems  to  the  2600  that  never  caught  on,  as  well  as  a 
hand-held  video-game  system),  Atari  Corp.  claimed  that  the  Nin- 
tendo licensing  agreement  preventing  licensees  from  releasing 
Nintendo  games  on  competing  systems  for  two  years  amounted  to 
unfair  restraint  of  trade.  Because  of  that  clause  in  this  agreement, 
the  Tramiels  couldn't  get  good  games. 

Howard  Lincoln  told  the  press  he  considered  the  suit  "meritless, 
simply  an  attempt  to  excuse  Atari's  poor  competitive  performance 


GAME    OVER 


in  the  marketplace,"  and  added  that  he  relished  the  opportunity  to 
go  to  court  with  the  case.  "Our  defense  is  really  simple,"  he  said. 
"We  are  going  to  put  Sam  Tramiel  on  the  stand  and  he  is  going  to 
explain  how,  in  1985,  he  had  100  percent  of  the  market  for  home 
video  games,  and  [that]  the  home  video-game  business  was  synony- 
mous with  Atari  and  no  one  had  ever  heard  of  Nintendo.  And  then 
we're  going  to  demonstrate  how,  through  his  own  ineptness  and 
idiocy  and  mismanagement,  he  took  that  franchise  and  shot  it  in 
the  foot  and  killed  it.  We'll  show  how  he  was  quite  successful  in 
doing  it  and  literally  went  from  owning  100  percent  of  the  markei: 
to  no  market  share.  I  think  we  will  do  fine." 

Atari  Corp.'s  contention  was  essentially  the  same  as  that  of  Atan 
Games,  only  in  reverse.  The  two-year  limitation  hurt  Atari  Corp 
because  Nintendo  licensees'  best  games  were  tied  up,  and  it  hurl: 
the  licensees  because  it  limited  their  market.  Those  were  two  years 
that  software  companies  lost  the  ability  to  profit  by  selling  their 
games  for  other  systems. 

The  implications  of  the  two  suits  were  enormous.  Dan  Van 
Elderen  said,  "If  Nintendo  loses  on  that  key  argument,  they  have  a. 
huge  liability — almost  overwhelming.  All  the  licensees  could  have 
been  unfairly  restricted  by  Nintendo."  The  Atari  Corp.  suit,  the 
first  to  come  to  trial,  could  cost  Nintendo  almost  half  a  billion 
dollars  (damages  are  tripled  in  this  kind  of  antitrust  case).  Other 
companies  could  also  jump  on  the  bandwagon  and  sue.  Atari 
Games'  case  would  be  even  costlier,  and  the  nine-hundred-pound 
gorilla  could  be  brought  to  its  knees. 

Arakawa  was  called  by  Atari  Corp.  lawyers  into  Judge  Smith's, 
San  Francisco  courthouse.  Wearing  a  double-breasted  navy-blue 
suit,  he  leaned  forward  on  the  stand,  listening  carefully  to  the 
questions.  "Isn't  it  a  fact  that  if  Atari  or  Sega  was  also  being 
carried,  the  salesman  would  go  in  and  say  they  won't  be  able  to 
carry  Nintendo?"  the  attorney  asked. 

In  a  voice  decibels  lower  than  the  lawyer's,  Arakawa  answered. 
"Definitely  not." 

The  lawyer  asked,  "Did  Nintendo  ever  tell  any  licensee  that  they 
could  only  make  games  for  Nintendo?" 

"No." 


THE    BIG    SLEEP  259 

"Did  Nintendo  ever  tell  them,  the  licensees,  that  if  they  put 
games  on  any  other  system  they  would  be  penalized?" 

"No." 

"That  Nintendo  would  reduce  their  allocation  of  chips  during 
the  chip  shortage?" 

"No." 

"Cancel  trade-show  space?" 

"No." 

"Any  threats  to  prevent  them  from  making  games  for  other 
home  video-game  systems?" 

"No." 

The  court  cases  slogged  along.  Nintendo's  business  was  "video 
games  and  litigation,"  said  an  employee.  In  the  middle  of  a  dead- 
line for  a  new  issue  of  Nintendo  Power,  Gail  Tilden  was  handed 
another  weighty  stack  of  papers  by  a  member  of  Howard  Lincoln's 
staff  of  lawyers.  She  shrugged.  "We  spend  a  lot  of  time  doing 
depositions  these  days."  Arakawa  noted  that  Nintendo's  legal  bills 
($20  million  a  year  by  1990),  although  a  significant  amount  of 
money,  were  nothing  when  compared  to  total  sales.  "Nintendo 
made  a  billion  dollars  this  year,"  Hide  Nakajima  said  in  1991. 
"They  can  spend  all  the  time  and  money  it  takes  to  destroy  us."  On 
the  other  hand,  Dennis  Wood  claimed  that  the  Nintendo  cases 
could  have  broken  Atari  Games,  and  Nakajima  concurred.  In  the 
meantime  Atari  Games  pleaded  with  the  judge  for  a  stay  of  her 
ruling  that  forbade  it  to  sell  its  games.  The  ruling  was  destroying 
the  company.  On  April  11, 1991,  the  judge  agreed  to  allow  Tengen 
to  sell  its  games  pending  the  outcome  of  an  appeal.  A  year  later,  in 
September  1992,  Tengen  lost  the  appeal  and  had  to  recall  all  its 
games  that  played  on  the  NES.  The  judge  meanwhile  set  a  date  for 
the  trial  of  Nintendo's  litigation  against  Atari  Games  in  May  1993. 

Howard  Lincoln  never  believed  Nakajima's  contention  that  he 
was  fighting  Nintendo  on  his  own.  "There's  no  question  in  my 
mind  who's  running  the  litigation  against  us,"  he  alleged.  "It's  not 
Nakajima  at  Atari  Games,  and  it  isn't  Jack  and  Sam  Ttetmiel  at 
Atari  Corp.,  who  are  just  on  the  bandwagon  like  vultures  looking 
for  scraps.  It's  got  to  be  Steve  Ross  at  Time  Warner.  He  wants  to 


2BO  GAME    OVER 


be  back  in  the  video-game  business  and  he  sees  this  as  a  tremen- 
dous opportunity  to  make  some  money.  He  has  nothing  to  lose  and 
everything  to  gain.  We  keep  beating  the  hell  out  of  them,  and  they 
keep  hemorrhaging  money.  Why  are  they  doing  this?" 

Time  Warner's  large  interest  in  both  Ataris  lends  weight  to  Lin- 
coln's assertion,  though  Ross  refuses  to  comment.  An  Atari  Games 
spokesman  repeatedly  denied  that  deep  pockets  were  fueling  the 
lawsuit,  but  Manny  Gerard,  Ross's  old  Warner  buddy,  quoted  a 
senior  Warner  executive  as  saying,  "The  biggest  asset  to  come  out 
of  the  Atari  experience  for  Warner  may  lie  in  the  Atari  Games- 
Nintendo  lawsuit."  Gerard  says,  "For  Steve,  a  significant  percent- 
age of  a  jillion  dollars  would  be  a  nice  consolation  prize.  At  least 
he  would  have  gotten  something  for  the  Atari  nightmare." 

The  two  Atari  cases  inched  along.  Months  of  discovery  turned 
into  years,  with  motion  after  motion,  countless  status  conferences, 
and  tons — literally — of  depositions.  Meanwhile,  the  clock  ticked 
on  Nintendo's  invulnerability.  It  had  made  too  many  enemies  to 
survive  all  these  attacks  unscathed. 


\ 


12 


GAME  OVER 


* 


warning:  Your  child  may  be  addicted  to  a  product  pushed  by  a  criminal 
racketeering  enterprise.  Kids  as  young  as  five  have  even  given  up  TV  for  their 
habit,  hooked  by  assertive  characters  named  Mario  and  Luigi. 

The  alleged  criminal  enterprise  is  Nintendo.  ...  If  the  legal  accusation  of 
toymaker  as  mobster  is  surprising,  perhaps  all  is  explained  by  the  fact  that 
Nintendo  is  a  Japanese  company  whose  success  comes  at  the  expense  of  an 
American  former  market  leader. 

— L.  Gordon  Crovitz, 
The  Wall  Street  Journal 


When  Nintendo's  competitors  failed  in  the  marketplace,  they  not 
only  turned  to  the  courts,  but  also  went  to  legislators  with  their 
accusations  that  the  company  was  perpetuating  an  illegal  monop- 
oly that  not  only  deprived  American  companies  of  their  right  to  do 
business  but,  in  the  process,  added  billions  of  dollars  to  the  existing 
trade  deficit  with  Japan. 

Atari  Games'  Hide  Nakajima  and  Dennis  Wood  had  found  Nin- 
tendo's Achilles'  heel,  and  they  took  aim  at  it:  Nintendo  was  a 
Japanese  company  enjoying  extraordinary  success  in  America  at  a 
time  when  Japanese  companies  were  the  object  of  American  dis- 
trust and  hostility.  Soon  members  of  Congress,  the  Justice  Depart- 
ment, and  the  Federal  T3*ade  Commission  would  all  have  their 
sights  set  on  Nintendo.  Nakajima,  himself  Japanese,  may  not  have 
set  out  to  place  Nintendo  in  the  front  line  of  the  trade  war,  but  he 
did.  Apparently  all  was  fair  in  the  video-game  wars. 

Slowly  Americans  began  to  notice  that  the  game  was  over.  The 


262  GAME    OVER 


Japanese  had  already  landed.  Disguised  as  a  video-game  system, 
the  invaders  had  been  carried  into  America's  living  rooms  by  chil- 
dren. The  growing  video-game  business — worth  in  the  neighbor- 
hood of  $5.5  billion  by  1992 — was  owned  by  Nintendo  and  a  few 
smaller  competitors,  all  of  them  Japanese.  In  the  United  States, 
people  were  finally  beginning  to  ask,  "Where  are  the  American 
companies?" 

As  legislators  realized  that  Nintendo  was  expanding  its  opera- 
tions in  America  and  seeking  broader  markets — markets  that  cor- 
porations such  as  Apple  and  IBM  had  assumed  were  theirs — 
Capitol  Hill's  interest  began  to  heat  up.  Congressmen,  meeting  in 
closed-door  sessions  (which  they  followed  with  melodramatic  press 
conferences)  would  soon  portray  the  Nintendo  system,  this  time 
without  flattery,  as  a  modern-day  Trojan  Horse — a  computer  hid- 
den inside  a  toy  with  greater  dependence  on  Japan  and  a  larger 
trade  deficit  lurking  within.  In  the  media  poised  to  jump  on  the 
bandwagon,  Nintendo  would  become  one  of  the  worst  perpetra- 
tors of  the  Japanese  devastation  of  the  American  economy.  The 
repercussions  were  manifold. 

In  early  1992,  Hiroshi  Yamauchi,  previously  unknown  to  the 
American  public  despite  Nintendo's  prominence,  would  land  on 
the  front  pages  of  newspapers  when  it  was  announced  that  he  was 
buying  Seattle's  major  league  baseball  team,  the  Mariners.  Unfor- 
tunately, Yamauchi's  offer  was  announced  in  the  same  week  that  a 
Japanese  legislator  publicly  made  the  indelicate  suggestion  that 
American  workers  were  lazy.  On  the  heels  of  this  highly  publicized 
slur,  the  Yamauchi-Mariners  deal  was  the  final  straw:  "They"  had 
the  audacity  to  attempt  to  buy  a  piece  of  American  baseball,  far 
dearer  in  the  hearts  of  its  citizens  than  Rockefeller  Center. 

Nintendo  would  become  a  tennis  ball  in  the  election-year  face- 
off  between  the  United  States  and  Japan,  with  epithets  volleying 
back  and  forth.  Meanwhile,  baseball  commissioner  Fay  Vincent 
would  argue  that  we  had  to  keep  something  sacred,  out  of  the  grips 
of  Japan — all  this  despite  the  fact  that  Seattle  city  fathers  had 
solicited  Yamauchi's  bid  in  a  desperate  attempt  to  keep  the  team 
in  town.  Nintendo  hardly  needed  the  attention.  It  was  already  a 
target  on  Capitol  Hill,  in  the  offices  of  state  attorneys  general,  and 


GAME    OVER  EB3 


in  the  press.  The  inquiries  that  had  begun  into  its  business  prac- 
tices would,  at  the  least,  cost  Nintendo  some  money.  They  might 
also,  in  the  words  of  one  investigator,  "make  it  very  unpopular  to 
be  associated  with  Nintendo  in  this  country." 

This  counteroffensive  against  Nintendo  began  in  1989,  when  the 
Atari  Games  executives  went  to  Washington  and  were  greeted  by 
the  sympathetic  ear  of  the  chairman  of  a  congressional  subcommit- 
tee on  antitrust,  Representative  Dennis  Eckart,  a  Democrat  from 
Ohio.  Dan  Van  Elderen  insists  that  the  investigation  on  Nintendo 
was  under  way  before  Atari  Games  got  involved,  and  Eckart  cor- 
roborates the  claim,  saying  that  it  was  a  response  to  complaints 
from  consumers  about  Nintendo's  high  prices  and  short  supplies, 
as  well  as  his  own  observations  about  the  video-game  market. 
Howard  Lincoln  counters  that  Atari  Games  appealed  to  its  local 
congressman,  Tom  Campbell,  who  happened  to  be  on  Eckart's 
subcommittee.  A  Campbell  staffer  confirms  that  Atari  Games  ap- 
proached Campbell.  In  any  event,  Eckart  set  out  to  build  a  case 
against  Nintendo. 

Atari  Games  executives  Van  Elderen  and  Wood  were  star  wit- 
nesses in  the  congressional  investigation.  Eckart  also  questioned 
dozens  of  others,  many  of  them  off-the-record  informants  who 
feared  reprisals  by  Nintendo.  If  the  congressman  hadn't  been  con- 
vinced by  Atari,  the  investigation  confirmed  for  him  that  Nintendo 
was  a  huge,  monopolistic  demon. 

Eckart  accused  Nintendo  of  antitrust  activities  related  to  the 
security  system  and  the  licensing  agreements  with  software  devel- 
opers— what  Atari  Games  called  "anticompetitive  conduct  in  the 
retail  market."  Eckart  further  charged  that  it  was  illegal  (as  tested 
in  an  IBM  case  from  1969)  for  a  hardware  company  to  restrict 
software  companies  from  creating  products  for  its  machine.  He 
attacked  Nintendo's  practice  of  "bundling"  hardware  with  the  soft- 
ware needed  to  make  it  work,  and  he  claimed  that  its  powerful 
position  vis-a-vis  retailers  and  competitors  had  enabled  it  to  hike 
up  prices  by  20  to  30  percent,  particularly  during  the  preceding 
Christmas  shopping  season.  Therefore  the  public  was  paying  exces- 
sive prices  because  of  NOA's  monopoly. 

Howard  Lincoln  first  heard  about  the  investigation  when  it  was 


GAME    OVER 


nearly  over.  He  was  at  a  cocktail  party  in  Toronto  in  October  1989 
when  the  head  of  the  Software  Publishers  Association  asked  if  he 
knew  that  his  company  was  under  investigation  by  Congress. 

Two  weeks  later  Lincoln  was  in  Washington  to  meet  with  Nin- 
tendo's lobbyist,  Don  Massey,  senior  vice-president  in  the  govern- 
ment-relations division  of  the  firm  Hill  &  Knowlton.  (Nintendo 
had  hired  the  lobbyist  to  push  legislation  through  the  Senate  that 
would  outlaw  the  rental  of  video  games.)  Lincoln  asked  Massey  to 
find  out  what  was  up. 

The  following  week  Massey  reported  that  there  hadn't  yet  been 
hearings,  but  that  boxes  full  of  evidence  had  been  gathered,  and  as 
many  as  sixty-five  interviews  had  been  conducted.  It  was  ominous 
that  Nintendo  hadn't  been  contacted;  it  suggested  that  a  lynching 
was  in  the  making. 

Lincoln  asked  Massey  to  request  that  Nintendo  be  given  the 
opportunity  to  be  heard.  Hearing  dates  were  set  up  and  canceled 
twice,  and  Lincoln  publicly  charged  that  Nintendo  was  being 
blocked  from  testifying.  Eckart  responded  by  scheduling  a  hearing 
for  December  4.  However,  that  hearing  was  canceled  too,  and  a 
few  days  later,  Massey  called  Lincoln  to  report  that  the  committee 
was  issuing  a  report  without  a  hearing,  and  that  a  press  conference 
had  been  called  for  the  next  day. 

"What?"  Lincoln  barked.  "How  can  they  have  an  investigation 
without  hearing  our  side  of  the  story?"  He  told  Massey  he  would 
call  the  committee's  counsel  himself. 

Lincoln  could  hardly  restrain  his  fury.  "Look,  I  don't  know  what 
is  going  on  here,  but  this  is  not  fair.  At  least  hear  our  side  of  the 
story  before  you  go  and  make  an  announcement." 

The  committee's  attorney  told  him  that  the  investigation  was 
completed,  and  that  there  was  nothing  to  be  done;  Nintendo's 
position  had  been  represented  by  Massey.  Lincoln  snapped,  "My 
lobbyist  does  not  know  my  business!  No  one  talked  to  me."  He 
demanded  to  talk  to  Eckart. 

When  the  congressman  got  on  the  line,  he  coolly  repeated  that 
the  investigation  was  over. 

"Come  on,"  Lincoln  said,  beginning  to  boil  over.  "Give  me  a 
break  here.  You  haven't  heard  our  side  of  the  story;  you  never 
received  any  materials  from  us."  When  Eckart  refused  to  budge, 


GAME    OVER  265 

Lincoln  lit  into  him.  "You  have  this  press  conference  set  up  for 
tomorrow;  you  know  what  that  date  is  as  well  as  I  do." 

Eckart  said  he  didn't. 

"Tomorrow  is  December  the  seventh,  Congressman." 

Eckart  tried  to  calm  him.  "It's  going  to  be  a  real  low-key  press 
conference,"  he  said. 

Lincoln  stopped  trying  to  contain  himself.  "I  wasn't  born  falling 
off  a  hay  truck,"  he  fumed.  "You're  trying  to  screw  us." 

Eckart  said,  "I'm  sorry  you  feel  that  way." 

Lincoln  angrily  tried  again.  "Come  on,"  he  said,  "let's  not  have  a 
circus." 

"But  the  tent  was  on  its  way  up,"  wrote  L.  Gordon  Crovitz  in  a 
biting  piece  in  The  Wall  Street  Journal  Eckart  held  the  news  confer- 
ence, as  scheduled,  on  December  7,  Pearl  Harbor  Day. 

"Coincidence?"  Crovitz  asked.  He  quoted  Howard  Lincoln:  "  'A 
lot  of  strange  things  happen  back  there  in  Washington,  but  at  least 
they  usually  give  the  appearance  of  fairness.'  "  Crovitz  continued: 
"[Lincoln]  called  Eckart  a  liar  for  saying  Nintendo  had  its  chance 
to  be  heard  and  he  dismissed  the  congressman's  antitrust  allega- 
tions as  'grandstanding.' " 

Crovitz's  piece  recounted  the  issues  in  the  Atari  Games-Nin- 
tendo lawsuit.  "About  fifty  software  firms,  many  of  them  Ameri- 
can, have  made  fortunes  under  this  system.  But  Atari  Games  and 
its  subsidiary,  Tengen,  which  was  a  Nintendo  licensee,  were  not 
satisfied  with  this  arrangement."  In  conclusion,  Crovitz  charged, 
"There  is  something  wrong  with  a  legal  and  political  system  whose 
vague  laws  strongly  encourage  competitors  to  seek  market  share 
outside  the  marketplace.  .  .  .  Nintendo  competitors  could  better 
spend  the  time  they  devoted  to  huddling  with  lawyers  and  congres- 
sional staffers  to  dreaming  up  the  next  Mario  and  Luigi  instead." 

With  Christmas  a  couple  of  weeks  away  and  Congress  out  of 
session,  there  was  little  else  for  Capitol  Hill  reporters  to  do  but 
flock  to  Eckart's  press  conference,  at  which  the  congressman  an- 
nounced that  he  was  recommending  an  investigation  of  Nintendo 
by  the  Justice  Department.  When  Lincoln  got  a  taped  copy  of  the 
press  conference,  he  exploded.  "Holy  Christ!  This  guy  had  more 
microphones  in  front  of  him  then  Roosevelt  did  when  he  declared 
war  on  Japan.  He  went  on  about  everything  from  resale  price 


266  GAME    OVER 


maintenance  to  our  treatment  of  Tengen.  Basically  it  was  a  story 
Tengen  would  have  written.  It  was  a  disaster." 

Tengen,  on  the  other  hand,  celebrated.  "Nintendo's  behavior  in 
the  United  States  is  so  atrocious  that  it  requires  the  action  of  the 
Department  of  Justice  to  restore  free  competition  to  the  market," 
Dennis  Wood  said  in  a  press  release.  "Since  Tengen  first  intro- 
duced its  line  of  independently  manufactured  Nintendo-compati- 
ble cartridges  in  December  1988,  Nintendo  has  attempted  to  force 
Tengen  out  of  the  home  video-game  market  through  a  deliberate 
campaign  of  distortion,  intimidation  and  coercion.  .  .  .  We  ap- 
plaud Representative  Eckart's  recognition  that  Nintendo's  monop- 
olistic business  practices  transcend  the  legal  disputes  between  the 
two  parties,  and  fully  support  his  recommendation  for  a  full-scale 
investigation  into  Nintendo's  unlawful  domination  of  the  U.S. 
home  video-game  market."  The  next  day  Atari  Corp.  also  released 
a  statement:  "Nintendo  has  demonstrated  its  disregard  for  free 
and  fair  competition  in  America,"  said  its  president,  Sam  Tramiel. 

Tengen  further  attempted  to  explain  the  issues  in  a  white  paper 
issued  a  few  days  later.  "The  Nintendo  monopoly,  like  all  monopo- 
lies, preempts  the  laws  of  supply  and  demand.  By  absolutely  fore- 
closing competition  and  by  strictly  controlling  not  only  the  volume 
of  the  games  but  the  product  mix,  Nintendo,  not  the  consumer,  is 
in  the  position  of  determining  which  games  are  the  most  popular. 
Further,  through  its  allocation  practices,  Nintendo  regulates  the 
amount  of  revenue  its  licensees  and  retailers  can  generate,  not  the 
marketplace.  Therefore,  manufacturing  their  own  products  and 
filing  the  lawsuit  became  the  only  way  that  Tengen  and  Atari 
Games  could  meet  the  actual  demand  for  their  products  and  take 
control  of  their  own  destinies." 

In  Eckart's  detailed,  eleven-page  letter  to  the  Justice  Depart- 
ment's antitrust  chief,  James  Rill,  the  congressman  said  that  Nin- 
tendo had  stifled  competition  by  blocking  competitors'  software 
cartridges  from  working,  thus  allowing  Nintendo  to  make  restric- 
tive licensing  agreements  with  software  makers.  "The  net  result  is 
that  there  is  only  one  game  in  town,"  Eckart  wrote.  He  concluded, 
"You  have  indicated  in  a  recent  public  address  your  concern  re- 
garding the  'growing  public  perception  that  antitrust  has  lost  its 
purpose  and  its  potency.'  I  applaud  your  commitment  to  a  more 


GAME    OVER  2  6  7 


active  enforcement  of  our  antitrust  laws  and  urge  your  careful 
attention  to  this  very  important  and  visible  area  of  high  technology 
and  intellectual  property." 

Responding  to  press  inquiries,  a  Justice  Department  spokes- 
woman said  that  the  agency  would  begin  an  investigation  immedi- 
ately. 

Months  later,  on  May  3,  1990,  Eckart  was  called  to  address 
another  subcommittee,  this  one  chaired  by  Jack  Brooks,  a  con- 
gressman from  Texas.  Brooks's  committee  was  looking  into  viola- 
tions of  U.S.  antitrust  laws  by  foreign  governments,  specifically 
Japan,  and  had  studied  the  many-tiered  distribution  system  there, 
a  closed  club  that  would  be  illegal  in  America. 

Brooks  ceremoniously  called  his  fellow  congressman  to  the 
stand  to  discuss  the  results  of  his  review  of  Nintendo.  Eckart  eluci- 
dated the  antitrust  issues  from  his  investigation  and  sounded 
alarms  about  the  high  stakes.  At  the  time  there  were  18  million 
homes  with  Nintendo  systems.  He  asked,  histrionically,  "How  did 
they  get  in  American  homes?"  Pause.  "They  enticed  their  way  in 
through  our  children's  hearts  .  .  .  [and  now]  you  can  turn  that 
video  game  into  a  low-level  home  computer.  ...  [In  Japan]  they 
pose  a  direct  threat  to  the  low-end  computer  industry,  and  because 
of  their  80  percent  market  concentration,  they  are  in  the  most 
unique  position  imaginable  to  make  that  similar  move  here  in  the 
United  States.  Is  that  bad  inherently?  No.  Unless,  of  course,  they 
control  the  programming  through  the  lock-out  chip,  through  this 
artificial  physical  barrier." 

Eckart  responded  to  questions  about  the  lock-out  chip  and  bun- 
dling. "Many  years  ago  we  said  no  thank  you  to  IBM  when  they 
wanted  to  bundle  their  programming  with  their  hardware,"  he 
said.  "In  fact,  now  every  ad  you  see  always  says,  'IBM-compatible,' 
'Apple-compatible.'- They  brag  that  you  can  put  this  programming 
in  anybody's  hardware  system.  Not  so  in  video  games. 

"However,  if  we  allow  them  to  retain  this  limited  hardware  gate- 
way, this  chip,  what  does  that  do  to  the  principle  that  we  estab- 
lished here  with  IBM?  That  was  in  the  1960s.  We  said  the  same 
thing  to  AT&T,  you'll  recall  .  .  .  there  should  not  be  hardware 
limitations  to  .  .  .  access  to  information.  So  it  has  been  the  policy 
of  this  government  through  several  presidents,  through  your  pre- 


2BB  GAME    OVER 


decessors,  Mr.  Chairman,  and  now  your  position  in  the  chair  to 
say,  'No.  We  want  access.  We  want  opportunity.' 

"Mr.  Chairman,"  Eckart  continued,  "if  you  can  turn  a  toy  into  a 
computer,  what's  the  next  step?" 

Before  concluding,  he  noted  that  U.S.  companies  were  held  to  a 
different  standard  than  foreign  companies — so  much  so  that  for- 
eign companies  had  little  to  fear  from  the  current  application  of 
America's  antitrust  laws — and  he  implored  Congress  to  take  action 
against  Nintendo. 

When  Dan  Van  Elderen  testified  before  the  same  committee,  he 
attempted  to  avoid  any  appearance  of  Japan-bashing  by  pointing 
out  that  "our  problem  is  not  with  any  specific  country.  Our  presi- 
dent is  Hideyuki  Nakajima,  a  Japanese  citizen.  .  .  .  Our  problem 
is  with  a  specific  company — Nintendo."  He  asserted  that  "Nin- 
tendo has  been  wildly  successful,  but  we  believe  its  success  is  the 
result  of  an  illegal  monopoly  that  is  operating  at  the  expense  of 
American  consumers  and  its  video-game  competitors.  Nintendo 
has  virtually  eliminated  competition  and  the  concept  of  open  mar- 
kets in  the  home  video-game  industry." 

Van  Elderen  cited  Bill  White,  who  was  quoted  in  the  Los  Angeles 
Times  as  saying,  "American  companies  don't  play  hardball  like 
this.  There's  more  of  a  sharing  of  the  pie  by  American  companies. 
In  Japan,  it's  different:  winners  win  big  and  losers  lose."  It  was  a 
restatement  of  Hiroshi  Yamauchi's  philosophy  of  one  strong  and 
the  rest  weak. 

On  the  bundling  issue,  Van  Elderen  quoted  from  an  article  in 
Computer  Lawyer:  "Ever  since  IBM  'unbundled'  hardware  and 
software  in  1969,  it  has  been  the  accepted  dogma  in  the  industry 
that  hardware  and  software  are  two  separate  domains.  It  has  long 
been  considered  taboo  for  a  hardware  manufacturer  to  enforce 
restraints,  by  patent,  copyright,  or  otherwise,  on  what  software  can 
be  run  on  its  system  or  who  can  manufacture  or  sell  that  software. 
Apart  from  the  home  video-game  business  [controlled  by  Nin- 
tendo], virtually  every  hardware  segment  has  a  dominant  supplier 
that  would  be  capable,  if  given  the  opportunity,  of  using  its  market 
position  and/or  financial  muscle  to  suppress  competition  in  its  sec- 
tor. .  .  . 


GAME    OVER 


"Nintendo,  because  of  its  total  control  of  the  manufacturing  of 
the  software,  is  in  the  sole  position  of  determining  which  products 
get  produced,  how  many  titles  and  units  of  specific  software  are 
available  on  the  market  at  a  given  time,  and  how  many  total  units 
are  available  to  consumers."  Van  Elderen  also  offered  the  com- 
plaint of  an  anonymous  software  company  CEO:  "We  are  at  their 
mercy.  They  can  make  or  break  any  of  us  overnight." 

"It  is,"  Van  Elderen  stated,  "as  if  Ford  Motor  Company  only 
allowed  Ford  gasoline  to  power  its  vehicles,  or  if  Sony  only  allowed 
videotaped  movies  that  it  produced  in  Japan  to  be  played  on  Sony 
VCRs." 

The  congressional  hearings  continued  as  the  Justice  Depart- 
ment ruled  that  the  Nintendo  case  should  be  handled  by  the  Fed- 
eral Trade  Commission.  In  collaboration  with  the  attorneys 
general  of  several  states,  the  FTC  began  concurrent  investigations 
into  the  price-fixing  charges  and  the  implications  of  the  lock-out 
technology.  The  investigation  dragged  on  for  more  than  a  year. 

There  was  sweating  over  the  potential  outcomes  at  NOA  in 
Redmond  since  they  threatened  Nintendo's  continued  dominance 
in  the  United  States.  Hiroshi  Yamauchi,  in  Japan,  saw  things  dif- 
ferently. For  him  the  FTC  and  American  antitrust  laws  were  "an 
inconvenience"  that  had  to  be  worked  around;  they  went  with  the 
territory.  Yamauchi  didn't  ignore  the  potential  disaster,  however. 
It  prompted  him  and  Arakawa  to  look  hard  at  markets  that  could 
replace  America  if  the  worst  happened.  Nintendo  had  already 
planned  to  intensify  its  push  in  Europe,  but  the  specter  of  trouble 
in  the  United  States  caused  them  to  expedite  the  European  inva- 
sion. Nintendo  would  be  poised  there  if  any  portion  of  the  Ameri- 
can gold  mine  was  to  be  denied  them. 

On  October  22,  1990,  Greg  Zachary,  in  The  Wall  Street  Journal 
revealed  Nintendo's  decision  to  ease  its  licensing  restrictions.  The 
decision  had  been  announced  in  a  memo,  quietly  circulated  among 
licensees  at  the  beginning  of  the  month. 

Zachary  observed  that  the  timing  of  the  changes — which  finally 
allowed  some  licensees  to  manufacture  their  own  games — was  re- 
lated to  the  ongoing  FTC  investigation.  The  word  on  the  street  was 
that  Nintendo  was   in   trouble.   "Indeed,   Nintendo's  business 


270  GAME    OVER 


records  and  the  records  of  roughly  a  half-dozen  of  its  largest  licen- 
sees have  been  seized  by  investigators  over  the  past  six  weeks," 
Zachary  reported. 

Nintendo  confirmed  that  it  had  loosened  its  restrictive  policy. 
Zachary  concluded,  "It  denied  it  took  action,  which  it  hasn't  pub- 
licly announced,  to  ease  criticism  from  both  government  officials 
and  competitors,  who  charge  that  Nintendo  locks  others  out  of  its 
business  to  keep  prices — and  profits — artificially  high." 

The  fine  print  revealed  that  only  a  few  small  licensees  could 
manufacture  games  on  their  own,  and  that  they  could  do  so  only 
after  purchasing  proprietary  chips  from  Nintendo.  NOA  would  be 
paid  for  the  chips  and  would  also  receive  a  high  royalty.  Howard 
Lincoln  later  admitted  that  although  the  loosening  of  the  restric- 
tion was  a  trade-off  in  terms  of  Nintendo's  profits  per  game — since 
the  licensees  still  had  to  buy  security  chips  from  Nintendo  and  pay 
a  hefty  royalty  (reportedly,  20  percent) — Nintendo  made  no  less 
money.  However,  the  eased  restrictions  did  mean  that  licensees 
had  a  slightly  greater  degree  of  control  of  their  own  fates. 

Nintendo  also  announced  that  it  was  rescinding  all  the  exclusiv- 
ity provisions  in  the  licensing  contracts.  It  was  all  right  to  release 
games  on  the  Nintendo  system  and,  say,  the  Sega  Genesis  system 
without  waiting  for  two  years.  The  reason  for  the  changes,  Nin- 
tendo claimed,  was  that  quality  had  been  successfully  kept  under 
control  and  Nintendo  Power  provided  a  de  facto  regulator;  compa- 
nies that  continued  to  make  high-quality  games  would  get  the 
attention  of  consumers  through  the  magazine.  One  retailer  pri- 
vately challenged  this  claim,  saying  that  by  now  an  effective  and 
legal  intimidation  factor  had  come  into  play.  (A  licensee  said,  "I'm 
not  going  to  make  games  for  competing  systems  because  we  know 
that  Nintendo  would  get  even,  one  way  or  another.")  Van  Elderen 
says  the  changes  proved  that  Nintendo  was  guilty,  and  he  suspects 
that  the  FTC  forced  the  new  rules.  Nintendo  consistently  has  de- 
nied it,  and  the  FTC  has  refused  comment. 

Nintendo's  announcement  may  indeed  have  resulted  from  a  deal 
made  with  the  FTC,  or  it  may  simply  have  been  a  way  to  cut  its 
losses  in  case  either  one  of  the  Ataris  won  in  court.  If  its  licensing 
agreement  was  illegal,  presumably  every  licensee  could  sue  NOA 


GAME    OVER  271 

for  restraint  of  trade  and  other  damages,  and  the  exposure  would 
have  been  in  the  billions  of  dollars. 

The  easing  up  of  restrictions  may  also  have  been  a  message  to 
Judge  Smith,  who  was  hearing  both  the  Atari  Games  and  Atari 
Corp.  cases.  Nintendo  would  thus  be  saying,  "Look,  we  are  easing 
up."  In  reality,  however,  nothing  much  had  changed.  The  compa- 
nies that  were  allowed  to  manufacture  their  own  games  were  the 
biggest  licensees,  the  ones  that  had  the  best  relationships  with 
Nintendo  in  the  first  place.  They  were  in  so  deep  with  Nintendo 
that  there  was  no  risk  of  their  going  against  NOA's  wishes  on 
anything  from  pricing  to  releasing  too  many  games.  Nintendo  still 
exercised  enormous  clout  by  rating  games  and  choosing  to  feature 
them  in — or  exclude  them  from— Nintendo  Power  and  other  adver- 
tising. Nintendo  could  also  influence  retailers  and,  if  worst  came  to 
worst,  create  a  short  supply  of  the  essential  chips. 

The  first  FTC  investigation,  made  public  in  April  1991,  focused 
on  allegations  of  price-fixing.  The  investigation,  conducted  in  co- 
operation with  attorneys  general  in  New  York  and  Maryland, 
sought  to  determine  whether  or  not  Nintendo  maintained  artifi- 
cially high  prices  for  its  hardware  and  software  by  enforcing  uni- 
form pricing  policies  and  punishing  companies  that  offered 
discounts. 

There  were  no  price  wars  throughout  Nintendo's  first  years  in 
the  marketplace  because,  it  was  alleged,  Nintendo  simply  forbade 
them.  Stores  tried  to  discount  the  NES  and  the  games,  but  Nin- 
tendo pressured  them  to  stop.  One  chain  reportedly  lowered  the 
price  of  the  NES  by  a  matter  of  cents  and  advertised  it  in  Sunday 
newspapers,  and  a  competitor  called  Nintendo,  which  immediately 
froze  shipments  to  the  company  offering  the  lowered  prices.  The 
competitor  who  turned  them  in  allegedly  called  Peter  Main  back  to 
ask,  "Do  I  get  their  allocation  now?" 

Hundreds  of  retailers  were  interviewed  for  the  FTC  investiga- 
tion, as  were  representatives  of  licensees  and  distributors.  Outside 
the  protection  of  anonymity  that  came  with  the  FTC  investigation, 
it  was  more  difficult  to  find  vocal  critics  of  Nintendo.  The  manager 
of  a  chain  of  toy  stores  who  spoke  to  the  FTC  says,  "The  deal  with 


272  GAME    OVER 

Nintendo  was  straightforward:  play  their  way  and  they  were  all 
charm  and  good  cheer;  cross  them  and  they  would  rip  your  lungs 
out." 

The  survival  of  many  retailers  depended  on  regular  shipments 
from  Nintendo,  and  they  couldn't  afford  to  start  a  price  war  if 
Nintendo  would  retaliate  by  short-shipping  them.  "Sales  guys 
aren't  antitrust  lawyers.  What  were  they  going  to  do?"  Atari 
Games'  Dennis  Wood  asked. 

When,  in  February  1990,  the  FTC  and  the  attorneys  general 
responsible  for  enforcing  the  antitrust  laws  in  the  fifty  states  served 
Nintendo  with  a  civil  investigative  demand  for  resale  price  mainte- 
nance, Lincoln  says  that  he  cooperated  fully.  "They  wanted  to  see 
everything.  They  wanted  to  understand  our  business." 

A  year  later,  some  of  Nintendo's  outside  attorneys  reported 
back.  "You  have  some  problems,"  one  reportedly  said.  "Your  sales 
guys  may  have  gone  a  little  too  far."  John  Kirby  counseled  Howard 
Lincoln  to  schedule  a  conference  with  the  FTC. 

At  the  meeting,  Lincoln  was  told  that  the  FTC  was  prepared 
to  bring  an  action  unless  Nintendo  signed  a  settlement  agree- 
ment called  a  consent  decree.  He,  Kirby,  and  Arakawa  decided 
to  sign  it  if  it  would  "wrap  up  everything,"  including  the  inves- 
tigations by  the  states.  In  subsequent  meetings  with  represen- 
tatives of  the  states  of  New  York  and  Maryland,  it  was  suggested 
that  the  resolution  could  be  a  redemption  coupon  offered  to  con- 
sumers, essentially  to  pay  those  who  had  overpaid  for  Nintendo 
products. 

Under  the  agreement,  Nintendo  promised  to  refrain  from  price- 
fixing.  It  would  not  reduce  the  supply  of  Nintendo  products  to 
dealers,  impose  different  credit  terms  on  them,  or  terminate  those 
who  failed  to  adhere  to  minimum  suggested  prices.  It  also  agreed 
not  to  ask  dealers  to  report  others  who  offered  Nintendo  products 
below  resale  prices  suggested  or  established  by  NOA.  Further,  it 
had  to  send  a  letter  to  its  dealers  advising  them  that  they  could 
henceforth  advertise  and  sell  its  products  at  any  price  without  any 
adverse  action  by  Nintendo. 

Concurrent  with  the  press  conference  held  in  Washington,  D.C., 
on  April  10,  1991,  the  New  York  State  Attorney  General's  office 
released  a  strongly  worded  statement.  "For  the  first  time  in  more 


GAME    OVER  273 


than  a  decade,  the  FTC  has  rejoined  the  battle  against  vertical 
price-fixing  by  manufacturers  and  retailers,"  Attorney  General 
Robert  Abrams  said.  "Nintendo  sales  representatives  kept  track  of 
retail  sales  to  make  sure  dealers  towed  the  line  on  prices.  Retailers 
who  resisted  Nintendo's  pressure  were  threatened  with  a  slow- 
down of  shipments  or  a  reduction  in  the  number  of  consoles  deliv- 
ered for  sale.  .  .  .  Nintendo  was  not  satisfied  with  being  the 
major  supplier  and  seller  of  the  biggest  electronics  game  for  kids  in 
the  country.  It  coerced  some  of  the  nation's  biggest  retailers  into 
keeping  the  prices  of  its  basic  video-game  system  at  $99.99." 
Abrams  stated  that  Nintendo  had  threatened  retailers  who  low- 
ered the  price  of  the  system  by  as  little  as  six  cents,  wishing  "to 
extract  every  last  ounce  of  profit."  He  said  he  was  sending  a  mes- 
sage that  was  "not  only  reaching  the  boardrooms  in  America,  but 
the  boardrooms  in  Japan  and  in  all  other  countries  that  do  busi- 
ness in  America." 

The  unbelievable  part  was  the  penalty  Nintendo  would  "pay." 
Abrams  announced  that,  anyone  who  had  bought  an  NES  system 
from  June  1,  1988,  through  December  31,  1990,  would  get  a  cou- 
pon good  for  a  $5  discount  on  Nintendo  merchandise.  NOA  had  to 
redeem  a  minimum  of  $5  million  and  a  maximum  of  $25  million 
worth  of  coupons.  What  it  boiled  down  to  was  that  Nintendo  was 
forced  to  offer  a  merchandising  deal  that  Peter  Main  might  have 
cooked  up  on  a  good  day.  It  was,  pure  and  simple,  a  promotion  to 
encourage  people  to  buy  millions  of  Nintendo  games.  It  was  also 
an  indication  that  the  government's  case  against  Nintendo  was 
fragile. 

In  an  editorial  in  Barron's  in  December  1991,  the  FTC,  not 
Nintendo,  was  taken  to  task.  The  settlement,  the  piece  read,  "was 
declared  a  victory.  Abrams  said  it  sent  'the  most  powerful  possible 
message  across  this  country  that  we  will  not  tolerate  this  kind  of 
pernicious  practice  which  takes  millions  of  dollars  out  of  the  pock- 
ets of  consumers.'  Indeed,  it  was  a  victory  for  Abrams,  who  ar- 
ranged for  Nintendo  to  mail  out  the  coupon  [in  New  York]  with  a 
self-congratulatory  letter  from  him,  just  as  his  campaign  for  the 
U.S.  Senate  got  under  way.  In  contrast,  consumers  had  to  spend 
$20  to  $70  on  Nintendo  products  in  order  to  enjoy  the  $5  rebate. 
.  .  .  Robert  Abrams  and  the  legions  of  trustbusting  lawyers  would 


274  GAME    OVER 


be  far  more  productively  occupied  playing  'Super  Mario  Bros.  3' 
than  bringing  cases  of  this  kind." 

Despite  the  fact  that  settlement  was  relatively  painless  for  Nin- 
tendo, in  a  press  release  Atari  Games'  Dennis  Wood  indicated  that 
the  FTC  decision  was  a  vindication.  "The  FTC  concluded  what 
we've  believed  for  a  long  time:  that  Nintendo  has  built  its  business 
on  illegal  activities."  In  his  press  release,  however,  Howard  Lincoln 
emphasized  that  the  settlement  was  agreed  to  in  order  to  avoid  a 
lengthy  court  battle  and  to  foster  consumer  goodwill.  "We  were 
concerned  with  how  Nintendo  game  players  might  view  these  alle- 
gations," he  said.  He  did  not  acknowledge  that  the  settlement  was 
a  boon  to  business.  "We  have  still  suffered  the  embarrassment,"  he 
says.  "Even  without  admitting  liability,  it  has  hurt  to  be  called 
price-fixers." 

After  the  settlement  was  announced,  Nintendo  did  its  required 
penitence,  sending  out  letters  and  indicating  that  it  would  include 
a  disclaimer  on  any  promotional  materials  in  which  it  suggested  a 
retail  price  to  remind  dealers  that  they  were  free  to  set  their  own 
prices.  Nintendo  also  educated  its  salesmen  and  marketers.  "We 
made  it  crystal  clear  to  every  employee  that  if  anybody  violated  the 
antitrust  laws,  they  were  history,"  Lincoln  says. 

But  the  FTC  wasn't  finished  with  Nintendo.  The  investigations 
of  licensing  policies  and  the  lock-out  chip  were  ongoing.  An  insider 
suggested  that  the  government  was  awaiting  the  results  of  the  Atari 
antimonopoly  cases  to  determine  if  Nintendo  was  culpable.  If  it 
was,  the  FTC  would  go  after  Nintendo  with  guns  drawn.  If  not,  the 
investigation  would  likely  fade  away. 

Despite  the  findings  of  the  FTC  or  in  the  lawsuits,  some  overrid- 
ing questions  persisted.  One  was  whether  competition  should  be 
legislated  or  litigated  outside  the  marketplace.  Another  was 
whether  prosecution  would  be  part  of  America's  counterattack  on 
successful  Japanese  companies.  "No  one  complained  until  we  be- 
came so  big,"  Arakawa  says.  Peter  Main  is  adamant  that  Nintendo 
was  a  victim  of  the  trade  war.  "If  Nintendo  were  an  American 
company,  no  one  would  have  said  a  word."  Acclaim's  Greg  Fisch- 
bach  agrees:  "It's  more  Japan-bashing."  Non-Japanese  companies 
were  also  targeted  by  the  FTC  (Nintendo's  Redmond  neighbor, 


GAME    OVER  2  7  5 


Microsoft,  was  under  investigation),  but  the  specific  charge  of 
price-fixing  had  been  leveled  exclusively  at  a  series  of  Japanese 
companies,  including  Panasonic,  Mitsubishi,  and  Minolta,  all  of 
which  were  found  guilty. 

Novelist  Michael  Crichton  exploited  U.S.-Japanese  trade  ten- 
sions in  his  best-selling  1992  thriller  Rising  Sun,  a  pop  piece  of 
propaganda  that  nonetheless  cited  facts.  Crichton's  fictional  con- 
glomerate, Nakamoto,  is  about  to  be  investigated  by  journalists. 
"We're  doing  a  big  series  on  taxes/'  says  a  reporter.  "The  govern- 
ment is  finally  noticing  that  Japanese  corporations  do  a  lot  of 
business  here,  but  they  don't  pay  much  tax  in  America.  Some  of 
them  pay  none,  which  is  ridiculous.  They  control  their  profits  by 
overpricing  the  Japanese  subcomponents  that  their  American  as- 
sembly plants  import.  It's  outrageous,  but  of  course,  the  American 
government  has  never  been  too  swift  about  penalizing  Japan  be- 
fore. And  the  Japanese  spend  half  a  billion  a  year  in  Washington  to 
keep  everybody  calmed  down." 

"But  you're  going  to  do  a  tax  story?"  Crichton's  protagonist,  a 
police  special  services  agent,  asks. 

"Yeah.  And  we're  looking  at  Nakamoto.  My  sources  keep  telling 
me  Nakamoto's  going  to  get  hit  with  a  price-fixing  suit.  Price-fixing 
is  the  name  of  the  game  for  Japanese  companies.  I  pulled  a  list  of 
who's  settled  lawsuits.  Nintendo  in  1991,  price-fixing  games.  Mitsu- 
bishi that  year,  price-fixing  TVs.  Panasonic  in  1989.  Minolta  in 
1987.  And  you  know  that's  just  the  tip  of  the  iceberg." 

Later,  Crichton's  cop  gets  another  perspective  when  he  dis- 
cusses the  issue  with  his  partner.  "But  price-fixing  is  illegal,"  the 
special  services  agent  says. 

"In  America,"  his  partner  responds.  "Yes.  But  it's  normal  proce- 
dure in  Japan.  .  .  .  Collusive  agreements  are  the  way  things  are 
done.  .  .  .  Americans  get  moralistic  about  collusion,  instead  of 
just  seeing  it  as  a  different  way  of  doing  business." 

Speaking  anonymously,  a  game  developer  who  worked  with  Nin- 
tendo said,  "Nintendo  exerts  monopoly  control  over  development, 
over  the  retailers,  over  manufacturing.  .  .  .  They  only  get  away 
with  it  because  there  is  no  competition.  If  there  were,  developers 
would  not  agree  to  let  someone  else  control  the  manufacturing, 


2  "76  GAME    OVER 


control  the  delivering  of  product,  control  everything.  They  would 
not  allow  Nintendo  to  charge  for  everything  in  advance." 

Nintendo  may  have  had  justifications  for  manipulating  the  prod- 
uct released  for  its  machine,  but  such  manipulation  was  illegal, 
regardless  of  intentions.  Part  of  the  reason  it  limited  the  number  of 
titles  companies  could  release  was  because  it  didn't  want  to  see  any 
other  company  gain  significant  power  with  retailers—just  as  com- 
panies attempted  to  stop  labor  unions  from  forming.  It  didn't  want 
coalitions  to  form.  It  forced  companies  to  develop  titles  exclusively 
for  its  system  to  force  them  to  choose— and  what  company  could 
afford  not  to  choose  Nintendo?  Of  course  the  vast  majority  chose 
it  over  the  competition  despite  its  disproportionately  high  royalty, 
so  prices  remained  high. 

Nintendo  also  tied  up  developers  with  Howard  Lincoln's  lawsuit 
machine.  "Once  you  signed  up  with  them,  they  had  you,"  the  game 
developer  says,  because  that  signature  legally  acknowledged  the 
validity  of  Nintendo's  patents  as  well  as  receipt  of  confidential 
information  required  to  develop  games.  Nintendo  prohibited 
licensees  from  abandoning  ship  once  they  signed  up.  It  could  go 
after  straying  companies  in  court—just  as  it  went  after  Atari 
Games— by  arguing  that  they  were  able  to  compete  only  by  ex- 
ploiting proprietary  information  supplied  by  Nintendo. 

For  years  Nintendo  had  been  trying  to  stop  the  burgeoning  in- 
dustry of  video-game  rentals.  It  took  the  largest  video-game  rental 
company,  Blockbuster,  to  court  and  worked  with  Hill  &  Knowl- 
ton's  Massey  to  attempt  to  convince  legislators  to  make  it  illegal. 
At  the  same  time,  Nintendo  also  attempted  to  stop  video-game 
rentals  by  coercion  and  threats. 

Since  Nintendo  wouldn't  sell  directly  to  video-rental  stores,  rep- 
resentatives of  the  stores  bought  games  from  retailers— just  like 
anyone  else,  but  in  greater  volume.  Kids  could  then  go  to  a  place 
like  Blockbuster  and  rent  "Super  Mario  Bros.  3"  or  "Dr.  Mario" 
for  a  few  dollars  instead  of  paying  $40  or  $50  to  buy  the  game.  To 
stop  the  rental  companies  from  obtaining  games  from  retailers, 
some  of  the  largest  Nintendo  dealers  issued  a  policy  forbidding 
multiple  sales  of  any  game.  But  in  at  least  one  documented  case, 
someone  from  Nintendo  itself  threatened  retaliation. 


GAME    OVER  277 


Try  Soft  of  America  owned  kiosks  that  were  set  up  in  malls  in  the 
Seattle  area  and  sold  nothing  but  Nintendo  games.  A  memoran- 
dum was  sent  out  on  June  15,  1989,  to  Try  Soft  store  managers 
from  Brent  Weaver,  NOA's  senior  sales  and  marketing  manager. 
"Nintendo  of  America  is  very  concerned  about  video  stores  under- 
mining our  business  by  renting  tapes  [sic]  to  customers.  They  feel 
renting  games  decreases  the  perceived  value  by  the  customer  and 
reduces  our  sales.  During  a  recent  meeting  with  top  executives  at 
NOA,  Try  Soft  has  promised  NOA  to  follow  a  strict  quantity  limita- 
tion policy  in  all  stores  and  mail  order. 

"Henceforth  we  will  limit  each  customer  to  no  more  than  two 
pieces  of  any  NOA  product,  including  software  and  hardware. 
There  will  be  no  exceptions  to  this  policy,  including  multiple  in- 
voicing. Do  not  sell  more  than  two  pieces  of  any  NOA  product  to 
any  customer  or  employees  of  video  stores.  ...  if  two  employees 
of  a  video  store  come  to  your  store  together,  do  not  sell  a  total  of 
four  pieces  of  any  one  title  to  them.  We  are  essentially  cutting  off 
product  to  video  stores.  .  .  .  Our  policy  concerning  product  man- 
ufactured by  third-party  licensees  is  a  bit  more  relaxed.  Your  store 
will  be  given  monthly  a  list  of  products  which  you  may  not  sell 
more  than  two  pieces  of  to  a  customer.  All  other  product  will  be 
limited  to  a  maximum  of  10  pieces  and  must  be  multiple-invoiced. 
"Nintendo  has  begun  to  watch  our  sales  very  closely,"  Weaver 
wrote,  "and  if  we  do  not  adhere  to  this  policy,  our  allocations  from 
them  will  be  severely  reduced.  Failure  of  your  store  to  follow  these 
guidelines  will  result  in  a  reprimand.  .  .  .  This  policy  is  effective 
immediately." 

Although  Howard  Lincoln  denied  the  accuracy  of  the  memo  and 
fired  off  a  response  to  Try  Soft  saying  that  it  was  all  a  misunder- 
standing, it  was  part  of  a  growing  body  of  evidence  indicating  that 
Nintendo  had  overstepped  its  bounds.  Something  more  than  price- 
fixing  seemed  to  be  going  on.  The  question  was  whether,  or  in  what 
instances,  Nintendo  was  actually  breaking  laws.  The  Tiy  Soft 
memo  revealed  that  at  least  some  people  at  Nintendo  sought  to 
protect  their  own  games  and  were  less  concerned  about  licensees' 
games.  Also,  the  controls  on  the  licensees'  games  were  apparently 
inconsistent;  a  list  would  determine  what  games  could  and  could 
not  be  sold  in  bulk.  The  assertion  by  Atari  Games  that  licensees 


278  GAME    OVER 


were  not  all  treated  alike— in  spite  of  what  Howard  Lincoln,  Mi- 
nora Arakawa,  and  Peter  Main  claimed— was  concretely  sup- 
ported by  the  memo. 

The  implications  of  Nintendo's  tight  controls,  legal  or  illegal, 
were  hotly  debated.  Some  in  the  industry  agreed  that  they  were 
anti-competition  and  downright  un-American,  while  others  agreed 
with  the  Nintendo  party  line:  NOA  was  exercising  legal  controls  to 
manage  an  industry  that  had  once  self-destructed.  Publicly,  licen- 
sees agreed  and  nonlicensees  disagreed.  One  of  the  latter,  it  was 
observed,  originally  disagreed  but  changed  its  mind  once  it  became 
a  licensee. 

Jim  Mackonochie,  who  had  run  Robert  Maxwell's  software  com- 
pany, Mirrorsoft,  before  joining  Commodore  International,  be- 
lieved that  Nintendo's  monopolistic  practices  could  stunt  the 
larger  industry.  "It's  as  if  a  writer  could  not  publish  unless  he 
owned  the  printing  press,"  he  says.  "How  much  poorer  would  our 
civilization  be?  In  the  computer  industry,  the  most  creative  things 
often  come  when  small  groups  of  people,  not  necessarily  associ- 
ated with  big  companies  that  could  get  a  license,  get  together  to 
create.  The  best  games— 'Tetris,'  'Bamboozle,'  'Dungeon  Master' 
— all  came  from  individuals  or  small  development  groups.  Nin- 
tendo's policies  could  block  out  the  most  creative  people.  It  could 
kill  the  industry." 

More  likely,  Nintendo's  policies  could  kill  the  competitors.  In 
the  opinion  of  an  industry  analyst,  "The  lawsuits  and  government 
don't  seem  as  if  they  will  have  much  effect.  The  fact  is,  if  they 
haven't  been  able  to  stop  Nintendo  in  the  marketplace,  this  is  a 
feeble  try.  No  one  seems  to  be  able  to  stop  Nintendo."  Another 
industry  veteran  says  he  gives  Arakawa,  Lincoln,  and  Main  all  the 
credit  in  the  world.  "They  broke  every  fucking  antitrust  and  racke- 
teering law  we  have  and  got  away  with  it.  America  hasn't  seen 
anyone  like  them." 

Nintendo  remained  consistently  unrepentant,  and  the  price- 
fixing  settlement  allowed  it  to  deny  guilt.  Likewise,  it  denied 
charges  about  monopoly  control  and  restraint  of  trade,  and  it 
never  backed  down  on  its  commitment  to  the  restrictive  security 
system.  As  Hiroshi  Imanishi  said,  "We  made  a  choice  and  it  turns 
out  that  our  choice  was  the  correct  one."  Arakawa  added,  "The 


GAME    OVER  279 

chip  has  done  exactly  what  we  intended  it  to  do.  It  is  why  we  have 
been  able  to  maintain  such  a  strong  list  of  games,  and  why  consum- 
ers can  trust  the  Nintendo  quality  seal."  Howard  Lincoln  says  the 
tactics  described  in  the  Try  Soft  memo  may  show  that  individuals 
associated  with  Nintendo  went  too  far,  but  the  company  itself  was 
guilty  of  nothing  more  than  covering  all  bases  in  order  to  make  as 
much  money  as  it  possibly  could.  "What's  more  American  than 
that?"  he  asks. 

Another  Nintendo  licensee  believes  that  much  of  the  anti- 
Nintendo  sentiment  was  sour  grapes.  "It's  ironic  that  the  only 
people  crying  are  the  companies  who  are  hurt  by  Nintendo's  suc- 
cess," he  says.  "Nakajima  and  Wood  sicced  the  feds  on  Arakawa 
even  though  his  only  crime  was  that  he  did  the  best  he  could  for 
the  parent  company  and  the  NCL  stockholders.  It's  not  lost  on 
many  of  us  that  Atari,  the  loudest  critic,  is  the  company  that  de- 
stroyed video  games  the  first  time  around.  Nintendo  was  stronger 
and  smarter.  That's  the  bottom  line." 

It  is  also  partly  why  the  Japan-versus-U.S.  battle  worsened,  with 
Nintendo  in  the  forefront.  For  several  weeks  in  early  1992,  when 
Yamauchi's  attempt  to  buy  the  Seattle  Mariners  was  making  head- 
lines, the  company  was  watched  on  both  sides  of  the  Pacific.  In 
Tokyo  and  Osaka,  the  "attack"  on  Nintendo  was  an  illustration  of 
America's  hostility  toward  Japan.  Articles  in  the  American  press 
indicated  that  the  United  States  was  finally  drawing  the  line.  In  a 
twist  on  Akio  Morita  and  Shintaro  Ishihara's  The  Japan  That  Can 
Say  No,  America  was  saying  no  to  Japan:  no  to  a  Japanese  manu- 
facturer that  had  won  a  $122  million  contract  to  build  rail  cars  for 
the  Los  Angeles  County  Transportation  Commission  (the  contract 
later  went  to  an  Idaho-based  company);  no  to  Japanese-made  trac- 
tors in  favor  of  John  Deeres;  no  even  to  Kristi  Yamaguchi,  the 
Olympic  figure  skater,  who  received  few  of  the  sort  of  endorse- 
ment offers  that  Olympic  gold-medalists  normally  get  because,  ac- 
cording to  a  National  Public  Radio  report,  she  was  "the  wrong 
ethnicity";  and  no  to  Hiroshi  Yamauchi  in  his  bid  to  buy  into  the 
American  pastime. 

In  an  interview  with  The  New  York  Times,  the  Nintendo  chair- 
man attempted  to  show  that  his  interest  in  the  Mariners  was  his 
way  of  returning  something  to  the  country  that  had  made  him  so 


GAME    OVER 


rich.  He  explained  that  Seattle  businessmen,  and  even  the  gover- 
nor of  Washington  State  and  one  of  its  U.S.  senators,  had  solicited 
the  bid.  (The  current  owner  was  planning  to  move  the  Mariners  to 
St.  Petersburg,  Florida.)  Yet  Yamauchi's  patronizing  "benevo- 
lence" was  the  last  thing  Americans  wanted;  they  didn't  need  Japa- 
nese charity. 

Still,  local  public  opinion  in  the  Pacific  Northwest  favored  the 
sale  to  Yamauchi.  Letters  to  the  baseball  commission  called  the 
decision  to  ban  the  sale  racist  and  unfair.  Major  league  baseball 
wanted  local  ownership,  and  Arakawa  lived  in  Seattle.  In  any  case, 
baseball  was  not  exclusively  American,  since  Canadians  had  been 
allowed  to  own  teams  since  the  1960s. 

On  the  other  hand,  one  letter  writer,  in  an  attempt  to  prove  that 
Yamauchi  would  make  an  undesirable  owner  of  an  American 
team,  charged  that  Nintendo  was  a  racist  company  that  discrimi- 
nated particularly  against  black  Americans.  A  Nintendo  employee 
named  Carey  Wiggins,  an  African-American  with  a  degree  in  mar- 
keting, was  the  first  to  level  the  charge.  Wiggins  had  moved  to 
Seattle  and  found  a  job  at  Nintendo  as  a  temporary  warehouse 
worker.  Nine  months  later  he  was  still  a  temporary  employee,  with 
no  benefits  and  no  commitment  from  the  company  to  advance  him, 
in  spite  of  the  fact  that  less  qualified  workers  who  had  worked  for 
shorter  periods  of  time  had  been  hired  as  permanent,  full-time 
employees.  Wiggins  claimed  that  he  was  passed  over  for  jobs  on  a 
number  of  occasions,  each  time  in  favor  of  less  experienced, 
younger,  white  employees. 

In  April  1990,  Tim  Healy  of  the  Seattle  Times  did  a  series  of 
articles  on  charges  of  discrimination  at  Nintendo,  and  reported 
Howard  Lincoln's  claim  that  Nintendo's  explosive  growth  made  it 
difficult  to  find  enough  qualified  employees  regardless  of  racial  or 
ethnic  background.  Wiggins,  however,  didn't  accept  the  excuse.  As 
part  of  a  group  of  twenty-five  African-American  Nintendo  employ- 
ees, he  accused  NOA  of  racial  discrimination  in  the  hiring  and 
promotion  of  blacks.  The  employees  met  with  a  watchdog  organi- 
zation, the  Seattle  Core  Group,  which  mounted  an  investigation. 
The  Core  Group  determined  that  there  were  only  thirty  to  thirty- 
five  black  employees  out  of  the  total  of  1,500  to  1,600  in  the  com- 
pany, and  of  these,  only  one  was  in  management. 


GAME    OVER  2B  1 


Healy  reported  that  Nintendo's  record  was  not  atypical  for 
American  subsidiaries  of  Japanese  companies,  and  cited  a  study 
that  found  a  pattern  of  Japanese  auto  manufacturers  locating 
plants  in  areas  of  the  United  States  with  low  black  populations. 
Lawsuits  alleging  discrimination  had  been  brought  against  more 
than  half  a  dozen  American  subsidiaries  of  Japanese  companies. 
Honda  and  Nissan  paid  $600,000  and  $6  million,  respectively,  to 
settle  investigations  by  the  Equal  Employment  Opportunity  Com- 
mission (EEOC).  Other  companies  accused  of  racism  in  the 
United  States  included  Toyota,  Nikko  Securities,  and  Sumitomo 
Bank.  It  was  true  that  in  the  video-game  industry— Nintendo's 
industry — many  games  imported  from  Japan  had  to  be  modified  so 
that  they  would  be  acceptable  in  America;  the  villains  in  these 
games  were  frequently  black  or  otherwise  dark-skinned. 

There  were  also  reports  of  anti-black  jokes  among  both  white 
and  Japanese  workers  at  Nintendo.  According  to  the  director  of 
the  Core  Group,  African-Americans  were  "given  messages  that 
they  were  not  welcome  at  Nintendo." 

The  Core  Group  requested  a  meeting  with  Arakawa.  After  the 
state  employment  agency  got  involved,  Arakawa  agreed  to  a  meet- 
ing with  the  Core  Group  and  representatives  of  other  Seattle- 
based  groups  concerned  about  discrimination.  He  gave  a  compas- 
sionate speech — he  had  been  the  victim  of  racism  himself,  he  said 
—and  pledged  that  Nintendo  had  begun  training  its  employees  in 
ways  to  avoid  workplace  discrimination,  and  promised  to  initiate 
an  affirmative-action  plan. 

Meanwhile,  the  state  of  Washington  suspended  its  practice  of 
referring  job  seekers  to  Nintendo  even  though  Phil  Rogers  con- 
tested the  Core  Group's  statistics.  He  insisted  that  Nintendo  em- 
ployed 110  ethnic  minorities,  a  number  representing  14.3  percent 
of  the  permanent  work  force.  (The  percentage  included  all  minori- 
ties, including  Japanese.)  He  also  said  that  three,  not  one,  of  Nin- 
tendo's 147  managers  were  African-American. 

In  1991  Nintendo  unveiled  its  plan  for  an  affirmative-action  pro- 
gram, but  it  was  criticized  as  inadequate  by  the  Core  Group.  How- 
ard Lincoln  defended  it  and  pointed  to  steps  Nintendo  had  taken 
to  recruit  blacks  and  other  minorities.  An  EEOC  spokesman  in 
Seattle  agreed  that  Nintendo  seemed  to  have  corrected  the  prob- 


GAME    OVER 


lems;  there  had  been  no  new  complaints.  The  state  resumed  refer- 
ring applicants  to  Nintendo. 

Nonetheless,  when  Yamauchi  made  his  offer  to  buy  the  Mari- 
ners, the  head  of  the  Core  Group,  Oscar  Eason,  brought  the  issue 
to  the  attention  of  baseball  commissioner,  Fay  Vincent.  Eason 
wrote:  "This  letter  is  to  express  our  objection  to  the  proposed 
purchase  of  the  Seattle  Mariners  baseball  franchise  by  a  group  of 
investors  that  would  include  Nintendo  of  America.  Approximately 
two  years  ago  over  95  percent  of  all  African- Americans  employed 
by  Nintendo  appealed  to  [us]  for  assistance  to  help  improve  the 
discriminatory  conditions  that  existed  at  NOA's  Redmond, 
Washington,  facility.  .  .  .  Please  understand;  this  appeal  is  totally 
unrelated  to  any  discussion  pertaining  to  racism  toward  Asians, 
'Japan-bashing'  or  prejudice  aimed  at  foreigners." 

Nintendo's  alleged  racism,  by  then  a  hollow  and  unsupported 
charge,  was  not  the  primary  issue.  Howard  Lincoln  says,  "There  is 
a  lot  of  Japan-bashing  back  in  Washington,  D.C.  Nintendo  doesn't 
have  a  host  of  friends,  primarily  because  we're  a  Japanese  com- 
pany. Nintendo  is  a  well-known  company  with  a  large  market  share 
and  it  has  been  accused  of  all  of  these  terrible  things.  ...  We  do 
have  the  reputation  of  being  big  and  tough,  and  I  understand  some 
of  the  sentiment  against  Japan  in  Washington.  We  do  have  trade 
problems.  I  object  like  any  other  American  that  there  are  barriers 
to  Japan's  market.  But  that  is  not  what  we  are  doing.  I'm  not 
causing  those  barriers." 

What  Nintendo  did  do  was  to  aggressively  protect  its  turf,  meet- 
ing any  perceived  threat  to  its  continued  growth,  no  matter  how 
small,  head-on,  sometimes  with  bigger  guns  than  necessary.  The 
idea  was  to  nip  any  threat  in  the  bud  lethally.  Howard  Lincoln 
never  denied  the  company's  reputation  for  litigiousness.  Rather, 
he  exploited  it.  "Lincoln's  motto  was  Tuck  with  us  and  we  will 
destroy  you,'  "  says  a  fellow  attorney.  "Otherwise  he's  a  really  nice 
guy." 

To  supplement  their  business  in  an  increasingly  competitive  mar- 
ket, a  few  video-rental  outfits  began  renting  Nintendo  games  in 
1987  and  1988,  when  demand  for  cartridges  was  enormous.  For 
some  of  those  stores,  Nintendo  rentals  represented  30  to  40  per- 


GAME    OVER 


cent  of  their  business.  For  most  it  was  a  lower  but  still  significant  10 
to  15  percent.  The  largest  rental  chain,  Blockbuster,  had  revenues 
of  $1.5  billion  in  1990,  and  perhaps  $150  million  of  this  was  from 
Nintendo  game  rentals  (Blockbuster  would  not  disclose  the  exact 
figure). 

The  video-rental  industry  insisted  that  it  was  good  for  Nintendo; 
kids  could  try  games  out  before  buying  them.  Nintendo  disagreed; 
kids  could  try  games  out  instead  of  buying  them.  Howard  Lincoln 
said  that  video-game  rental  was  "nothing  less  than  commercial 
rape.  I  can  spend  thousands  of  hours  and  millions  of  dollars  creat- 
ing a  game,"  he  says.  "I  expect,  therefore,  to  be  compensated  every 
time  the  thing  sells.  All  of  a  sudden,  out  of  the  blue,  comes  a 
system  that  distributes  my  game  to  thousands  of  people  and  I  get 
no  royalty.  The  video-rental  companies  exploit  the  thing — renting 
it  out  over  and  over  again,  hundreds  and  even  thousands  of  times 
— and  I  get  nothing.  The  guy  who  developed  the  game  and  Nin- 
tendo get  screwed.  What  does  the  guy  who's  renting  the  cartridge 
contribute?  What  does  he  pay  in  terms  of  a  royalty  for  the  com- 
mercial exploitation  of  copyrighted  work?  Zip." 

Movies,  which  enjoy  a  huge  rental  market,  are  protected.  Stu- 
dios decide  if  and  when  a  movie  will  be  made  available  to  rental 
stores,  commonly  six  months  to  a  year  after  its  initial  release.  The 
studios  have  milked  as  much  money  from  the  market  as  possible 
before  they  go  for  the  gravy,  the  videocassette  market.  A  similar 
system  may  be  reasonable  for  video  games.  However,  the  same  day 
a  hot  game  is  released  to  the  public  in  toy  and  electronics  stores, 
representatives  from  video-rental  stores  go  to  retailers  and  buy  all 
the  copies  they  can  get. 

Nintendo  not  only  refused  to  sell  to  the  chains  and  individual 
stores  that  rented  movies  and  games  and  pressured  its  retailers  to 
do  the  same.  In  addition,  it  attempted  to  address  the  problem  in 
court  and  in  Congress.  Legislation  was  proposed  in  the  Senate  in 
May  1989,  spearheaded  by  software  companies  such  as  Word- 
Perfect Corporation  and  Microsoft  and  the  Software  Publishers 
Association,  that  would  prohibit  the  rental  of  all  computer  soft- 
ware, including  video  games. 

The  trade  association  of  video-rental  dealers,  the  Video  Soft- 
ware Dealers  Association  (VSDA),  promised  to  crush  the  bill  as 


GAME    OVER 


long  as  video  games  were  part  of  it;  video-game  rentals  were  too 
lucrative  to  give  up.  The  computer-software  companies  and  the 
SPA  succumbed,  according  to  Howard  Lincoln,  and  cut  a  deal  with 
the  VSDA,  agreeing  to  exclude  video  games  from  the  bill.  Since 
the  revision  of  the  proposed  legislation  required  some  justification, 
it  was  argued  that  video  games,  unlike  floppy  disk-based  software, 
were  not  copiable.  It  was  easy  to  rent  computer  software  and  make 
a  permanent  copy  at  home,  but  it  was  nearly  impossible  to  make  a 
copy  of  "Super  Mario  Bros."  (although  one  Taiwanese  company, 
Baelih,  advertised  a  game-copying  device). 

Before  1989,  Nintendo  had  never  been  represented  in  Washing- 
ton and  had  relied  on  the  SPA.  However,  Howard  Lincoln  charged, 
the  association  "sold  us  down  the  river,"  as  did  Microsoft,  their 
neighbor  in  Redmond.  (Howard  Lincoln  was  rebuffed  when  he 
went  to  the  company  to  ask  for  its  support.) 

Don  Massey,  a  lobbyist  who  represented  such  clients  as  the  gov- 
ernment of  Turkey  and  Gerber  Products  Co.,  was  retained  to  at- 
tempt to  influence  the  rental  legislation.  Nintendo's  position  was 
supported  only  halfheartedly  by  Washington  State's  congressional 
delegation,  which  was  caught  in  the  middle;  their  other  constituent 
in  Redmond  was  Microsoft,  which  wanted  the  bill  to  go  through 
whether  or  not  Nintendo  liked  it.  With  Massey's  help,  Nintendo 
fought  the  change  vigorously,  but  lost  in  July  1969. 

NOA  then  tried  to  push  for  a  compromise  bill  that  would  pro- 
hibit the  rental  of  a  video  game  for  a  year  after  its  release.  This  was 
proposed  in  Congress  by  Representative  Joe  Barton,  from  Texas,  a 
friend  of  Byron  Cook,  the  president  of  a  Nintendo  licensee  called 
Trade  West.  Nintendo  lost  that  one  too.  There  was  one  more  try, 
an  attempt  to  pass  a  bill  similar  to  one  sponsored  by  the  record 
industry  that  sought  to  ban  the  rental  of  records,  but  it  never  made 
it  through  the  House  Judiciary  Committee.  "We  got  killed  on  Cap- 
itol Hill,"  Lincoln  admits. 

There  were  other  avenues  Lincoln  took  in  his  attempt  to  stop 
the  rental  companies.  He  considered  suing  them  but  concluded 
that  Nintendo  wouldn't  prevail;  a  guiding  principle  in  copyright 
law  called  the  "first-sale  doctrine"  said  that  the  buyer  of  a  piece  of 
property  could  do  just  about  anything  with  it.  Since  a  ban  on 
rentals  by  the  courts  or  Congress  seemed  unlikely,  Nintendo  tried 


GAME    OVER 


another  tack.  The  video-rental  companies  were  packaging  game 
cartridges  with  photocopies  of  Nintendo's  instruction  manuals 
(original  manuals  rented  with  games  were  routinely  lost  or  torn). 
Since  these  were  copyrighted,  Lincoln  sued  over  the  manuals. 

NOA  went  after  the  biggest  company,  Blockbuster,  filing  a  suit 
on  the  eve  of  a  VSDA  convention  in  August  1989,  and  eventually 
Blockbuster  was  hit  with  a  preliminary  injunction  that  prohibited  it 
from  copying  the  manuals.  Nintendo  followed  this  minor  victory 
with  an  announcement  that  it  would  sue  any  other  company  that 
copied  manuals,  even  though  the  action  didn't  hurt  the  rental  busi- 
ness in  the  long  run;  companies  simply  came  up  with  common 
instructions  to  go  with  games. 

Nintendo  also  pursued  video-rental  outlets  that  named  their 
video-game  departments  "Nintendo  Centers"  and  retailers  that 
used  "Nintendo"  as  a  generic  term — i.e.,  "Come  in  and  buy  a 
Nintendo  game."  NOA  felt  it  had  to  pursue  all  offenders  if  Nin- 
tendo was  not  going  to  enter  the  language  as  the  word  for  video 
games.  Of  course  Lincoln  didn't  complain  when  General  Norman 
Schwarzkopf,  in  his  press  briefings  during  the  war  in  the  Persian 
Gulf,  referred  to  Desert  Storm  as  "the  first  Nintendo  war,"  but  few 
others  were  allowed  to  take  the  company's  name  in  vain. 

Lincoln's  in-house  and  outside  counsel  also  continued  to  pursue 
a  host  of  counterfeiters,  smugglers,  and  purveyors  of  illegal  games 
through  1992.  NOA  spent  millions  of  dollars  going  after  counter- 
feiters, occasionally  with  the  cooperation  of  the  American  govern- 
ment. In  mid-1991,  in  conjunction  with  U.S.  Customs  authorities, 
Nintendo  infiltrated  a  huge  counterfeiting  ring.  Individuals  associ- 
ated with  prominent  Taiwanese  companies  that  manufactured  and 
exported  counterfeit  games  were  arrested  in  Chicago,  San  Jose, 
Los  Angeles,  and  Miami.  Among  those  arrested  were  executives  of 
United  Microelectronics,  a  multimillion-dollar  Taiwanese  manu- 
facturer of  integrated  circuits.  United  Microelectronics  was  Tai- 
wan's largest  semiconductor  manufacturer,  and  the  bust  had  the 
potential  to  precipitate  an  international  incident,  particularly  when 
it  was  revealed  that  the  Tkiwanese  government  held  a  30  percent 
interest  in  the  company.  It  made  not  only  counterfeit  games  but 
also  counterfeit  memory  chips,  which  were  sold  to  dozens  of  other 
Tkiwanese  counterfeiters. 


GAME    OVER 


"We  finally  hit  pay  dirt,"  Lincoln  says.  "It's  like  stopping  a  drug 
ring.  You  find  the  little  guys  but  keep  missing  the  big  guys.  We 
finally  hit  the  big  guys."  The  big  guys  turned  out  to  be  a  govern- 
ment that  sanctioned  counterfeiters  operating  in  huge,  ultramod- 
ern plants,  churning  out  nothing  but  counterfeit  product.  U.S. 
Customs  said  that  70  percent  of  counterfeit  computer  and  elec- 
tronic products  seized  in  the  United  States  between  October  1990 
and  March  1992  was  from  Taiwan.  Nintendo  was  the  first  company 
to  tie  the  illegal  operation  to  the  government  itself. 

Taiwanese  game  cartridges  worked  on  the  NES  by  "zapping"  the 
security  chip.  A  specially  designed  chip  shot  a  negative  voltage 
spike  into  one  of  the  input  pins  of  the  security  chip  in  the  NES 
base  unit.  This  surge,  or  "zap,"  knocked  the  security  chip  sense- 
less; its  program  got  lost  in  a  repeating  loop  in  "the  weeds,"  as  a 
techie  explained.  "It  was  lost  in  space." 

Packed  with  up  to  a  hundred  games  on  one  cartridge,  the  coun- 
terfeit games  sold  throughout  the  world  for  from  fifty  to  several 
hundred  dollars.  They  were  available  in  major  cities  at  electronics 
or  video-game  shops,  mostly  small  ones. 

In  early  1992,  Nintendo  asked  the  U.S.  Trade  Representative  to 
take  action  against  the  Taiwanese  government.  In  1990  alone,  Nin- 
tendo claimed  to  have  lost  more  than  $1  billion  in  wholesale  sales. 
Up  to  100  million  counterfeit  games  were  sold  that  year  in  the 
United  States,  and  most  of  the  ROM  chips  in  them  were  manufac- 
tured by  United  Microelectronics. 

Nintendo  also  sued  retailers  that  carried  the  illegal  games  and, 
when  possible,  pursued  the  manufacturers  and  importers;  there 
were  three  hundred  suits  in  Canada  and  the  United  States.  The 
games  were  also  sold  through  mail  order,  newspaper  ads,  and  flea 
markets.  Nintendo  went  after  any  violator  it  could  find. 

The  counterfeit  business  was  so  enormous  that  even  if  Nintendo 
stopped  it  in  the  United  States,  Canada,  and  Europe,  it  couldn't 
touch  the  mammoth  industry  in  the  People's  Republic  of  China, 
where  100  percent  of  the  growing  Nintendo  business  was  counter- 
feit, both  hardware  and  software,  almost  all  from  Taiwan.  The 
counterfeiters  actually  set  up  a  company  in  China  called  Nintendo, 
according  to  Howard  Lincoln.  Nintendo  tried  to  bring  the  issue  to 
the  attention  of  the  Chinese  government,  but  to  no  avail.  In  1992 


GAME    OVER  2B7 

the  U.S.  Trade  Representative  agreed  to  intercede  on  Nintendo's 
behalf. 

Closer  to  home,  Nintendo  went  after  a  relatively  small  San  Fran- 
cisco-based toy  company,  Lewis  Galoob,  not  for  counterfeiting, 
but  for  a  peripheral  device.  Galoob  manufactured  a  product  (un- 
der license  from  a  British  firm)  that  allowed  players  to  modify 
Nintendo  games.  Mario  could  jump  higher,  become  invincible,  and 
have  a  hundred  or  even  an  infinite  number  of  lives — whatever  the 
player  chose.  Galoob  sold  the  device  in  the  United  States  under 
the  name  Game  Genie. 

Nintendo  claims  that  Galoob  approached  them  about  a  license 
for  Game  Genie.  Galoob  denies  this.  Howard  Lincoln  insists  that 
Nintendo  considered  it,  but  decided  that  the  invention  would  de- 
stroy the  experience  of  many  Nintendo  games.  "It  creates  deriva- 
tive works,"  he  said.  "It  not  only  alters  Nintendo  games,  infringing 
on  copyrights,  but  can  make  them  less  fun,  too  easy  to  play." 

Nintendo  sued  in  June  1990  when  Galoob  announced  its  plans 
to  release  Game  Genie  on  its  own.  Nintendo's  argument  was  that 
millions  of  dollars  went  into  designing  games,  that  decisions  about 
the  number  of  lives  a  player  was  allowed  and  the  capabilities  of 
characters  were  essential  to  game  play,  and  that  altering  these  key 
components  could  destroy  a  good  game.  Howard  Lincoln  argued, 
"If  you  spend  enormous  time  and  effort  to  come  up  with  'Super 
Mario  3'  and  the  player  can  get  all  the  way  through  it,  basically  by 
cheating,  then  the  challenge  is  gone,  and  challenge  is  what  our 
business  is  about." 

The  changes  to  a  Nintendo  game,  Galoob  countered,  were  tem- 
porary— they  did  not  create  new  versions  of  the  games — and  con- 
sumers had  the  "freedom  and  right  ...  to  play  their  Nintendo 
games  in  ways  they  see  fit." 

In  June  1990,  Nintendo  got  a  preliminary  injunction  that  barred 
Galoob  from  producing  or  marketing  the  Game  Genie.  Galoob 
appealed  to  the  Ninth  Circuit,  which  upheld  the  injunction.  In  a 
nonjury  trial  in  April  1991,  with  Judge  Fern  Smith,  the  same  judge 
hearing  the  Atari  cases,  presiding,  witnesses  included  Sigeru 
Miyamoto,  flown  over  from  Kyoto,  who  testified  for  a  full  day. 

But  Judge  Smith  ruled  in  Galoob's  favor  in  July  1991,  deciding 
that  Game  Genie  did  not  create  derivative  works,  and  that  even  if 


GAME    OVER 


it  did,  Galoob  was  protected  by  the  fair-use  doctrine.  Galoob  was 
given  the  green  light  to  bring  Game  Genie  to  market,  and  its  stock 
shot  up  20  percent  the  day  the  court's  decision  was  made  public, 
despite  Nintendo's  announcement  that  it  planned  to  appeal.  Ana- 
lysts predicted  a  boost  in  Galoob's  sales  by  $30  million  a  year,  20 
percent  more  than  its  pre-Game  Genie  totals.  There  were  orders 
for  half  a  million  units  immediately  after  the  decision  was  an- 
nounced, even  before  a  massive  ad  campaign  was  launched  for  the 
Christmas  season  in  1991.  Eight  hundred  thousand  units,  all 
Galoob  could  make,  were  sold  by  the  time  of  the  Toy  Fair  in 
February  1992.  The  company  released  a  Game  Genie  for  Sega, 
too,  and  planned  to  launch  both  versions  in  Europe,  Australia, 
and,  in  late  1992,  Japan. 

Reporters  jumped  on  Judge  Smith's  ruling  as  "the  first  crack  in 
the  fortress  that  Nintendo  has  established  in  the  video-game  mar- 
ket," as  the  San  Francisco  Chronicle  put  it.  "The  congratulatory 
calls  began  pouring  in  as  soon  as  the  decision  was  announced," 
reported  the  Examiner.  Howard  Lincoln  admits,  "They  all  loved  it. 
Godzilla  in  Toyland  had  gotten  beaten.  It  was  like  a  dragon  had 
beenslayed.  .  .  .  If  we  win  on  the  appeal,"  he  adds,  "I'll  write  the 
press  release  myself."  (Nintendo  lost  the  appeal  in  September 
1992.) 

Nintendo  was  not  only  in  the  business  of  suing.  Fighting  against 
Nintendo's  ability  to  lock  them  out,  some  renegade  companies, 
including  American  Video  Entertainment  (AVE),  Camerica,  and 
Color  Dreams,  made  Nintendo-compatible  games  that  defused  the 
security  system  with  "zapper  technology."  In  1991  American  Video 
Entertainment  discovered  that  their  games  didn't  work  on  the 
newer  NES  systems;  the  circuitry  inside  them  had  been  revised. 
Richard  Frick,  AVE's  president,  believed  that  Nintendo  had  inten- 
tionally reworked  its  machine  to  reject  his  cartridges.  In  a  letter  to 
Nintendo,  he  charged  that  the  company  was  trying  to  put  him  out 
of  business. 

Howard  Lincoln  says  that  the  NES  hardware  revision  that  "hap- 
pened" to  lock  out  Frick's  games  was  part  of  Nintendo's  ongoing 
war  against  counterfeiters.  NCL  had  already  updated  the  NES  on 
fourteen  or  fifteen  different  occasions,  and  the  latest  version  was 


GAME    OVER 


designed  to  stop  illegal  Taiwanese  multi-game  cartridges  from 
working  on  the  system.  "We  were  trying  to  stay  one  step  ahead  of 
the  counterfeiters,"  Lincoln  insists.  "American  Video  Entertain- 
ment accused  us  of  deliberately  doing  it  to  them.  I  didn't  respond, 
but  the  answer  is:  'Tough!  We  can  make  our  product  any  way  we 
want.  The  change  was  not  to  drive  you  out  of  business;  we  didn't 
even  know  you  were  in  business  before  we  got  your  letter.'  " 

Frick  joined  the  list  of  companies  suing  Nintendo  with  a  $105 
million  action  in  January  1991,  charging  that  the  company  had 
altered  the  NES  machines  in  a  deliberate  attempt  to  render  his 
company's  cartridges  incompatible,  and,  once  again,  that  Nintendo 
was  guilty  of  monopolistic  practices  designed  to  kill  competition. 
The  suit  also  claimed  that  Nintendo  failed  to  inform  buyers  that 
only  NES-approved  games  would  work  on  the  machine,  even 
though,  in  the  course  of  the  Atari  Games  litigation,  it  had  stated 
that  outside  cartridges  could  work  on  the  NES.  One  thing  was 
proved  by  AVE:  Nintendo  used  its  licensing  agreement  to  keep 
prices  high.  Frick  demonstrated  that  he  could  make  a  profitable 
game  retailing  for  $20  because  he  didn't  have  to  pay  Nintendo's 
manufacturing  fees  and  royalties.  He  said  he  had  made  a  sizable 
profit  on  sales  of  60,000  "F-15  City  War"  games. 

Howard  Lincoln  dismissed  AVE's  claims  out  of  hand.  Even  Dan 
Van  Elderen  of  Atari  Games  indicated  that  Nintendo  would  likely 
get  away  with  the  system  revision  that  blocked  the  zapper  technol- 
ogy, even  if  this  had  been  its  sole  purpose.  The  technology,  Van 
Elderen  concedes,  actually  could  harm  the  NES.  "The  revision  was 
a  sound  engineering  decision  that  made  up  for  a  deficiency  in  the 
system.  .  .  .  The  NES  was  never  designed  to  withstand  that  kind 
of  high-voltage  charge." 

Frick  said  he  planned  to  go  after  Nintendo  with  everything  he 
had.  In  addition  to  fighting  Nintendo  in  court,  he  decided  to  go  to 
the  public,  urging  consumers  to  return  "deficient"  NOA  units  to 
retailers  and  to  demand  refunds  or  machines  that  played  all  games. 
Consumers,  however,  did  not  respond  to  his  call. 

Nintendo  couldn't  legally  pursue  companies  like  AVE  or  Color 
Dreams,  which  never  had  licensing  agreements  and  whose  games 
didn't  infringe  the  security-system  patent,  and  had  to  fight  those 
companies  in  other  ways.  There  were  new  charges  of  distributor 


29D  GAME    OVER 


and  retailer  intimidation,  with  Nintendo  allegedly  threatening 
companies  that  carried  Color  Dreams  or  AVE  games.  In  1992 
Richard  Frick  claimed  that  a  Nintendo  representative  warned  the 
head  of  the  electronics  departments  of  Wal-Mart  that  if  customers 
used  games  employing  the  zapper  technology  on  an  NES  they 
would  thereby  invalidate  the  Nintendo  warranty.  It  was  one  more 
variation  on  an  old  theme:  Sell  only  authorized  Nintendo  product 
or  else.  Wal-Mart  would  not  confirm  the  accusation,  Frick  says, 
because,  "You  tell  on  Nintendo  and  you  lose." 

Howard  Lincoln  insists  the  charges  are  untrue.  "We're  not  idi- 
ots," he  says.  "We  would  never  threaten  retailers.  It's  wrong,  and 
most  retailers  would  consider  it  inappropriate."  The  fact  was  that 
Nintendo  was  probably  able  to  repress  the  upstart  companies  with- 
out any  overt  action  because  of  its  control  of  distribution.  Retailers 
dealt  with  the  biggest  companies,  all  licensees,  because  it  was  eas- 
ier. Also,  the  best  games  tended  to  come  from  the  major  players, 
who  had  the  resources  to  invest  in  game  development.  Nintendo 
controlled  sales  by  promoting  only  approved  games  in  Nintendo 
Power,  and  retailers  were  unlikely  to  waste  valuable  shelf  space  on 
games  that  didn't  appear  in  the  magazine.  The  retailers  also  felt 
more  comfortable  selling  games  backed  by  Nintendo's  and  licen- 
sees' service  and  support  networks.  The  small  companies  simply 
could  not  compete. 

AVE  did  find  customers  in  the  video-rental  industry.  Block- 
buster led  the  rental  chains  with  an  order  for  2,050  copies  of  one 
AVE  game  with  new  technology  that  circumvented  the  Nintendo 
system  revision  that  had  locked  out  earlier  AVE  games.  The  game, 
"Wally  Bear  and  the  No  Gang"  (it  was  originally  ".  .  .  the  Just 
Say  No  Gang,"  but  Nancy  Reagan  had  trademarked  that  phrase), 
was  endorsed  by  the  American  Medical  Association  for  its  mes- 
sage: in  spite  of  peer  pressure  to  drink  and  do  drugs,  Wally  Bear 
said  no.  The  cartridge  worked  on  all  NES  units,  although  there  was 
no  way  of  knowing  whether  Nintendo  would  come  up  with  another 
system  revision  to  block  "Wally  Bear"  and  AVE's  technology. 

Howard  Lincoln  looked  for  other  ways  to  stop  the  companies 
that  got  around  the  security  system,  and  said  he  was  investigating 
other  patents  or  copyrights  the  companies  might  have  infringed.  If 
he  found  grounds,  he  would  sue.  There  was,  however,  at  least  one 


GAME    OVER 


other  maker  of  nonlicensed  games  that  Lincoln  was  unlikely  to  go 
after.  The  company  was  called  Wisdom  Ti*ee  and  it  made  the  Bible 
Adventure  Series  of  video  games  which  included  "Noah's  Ark," 
"Save  Baby  Moses,"  and  "David  Versus  Goliath."  The  possible 
headlines — for  instance,  Nintendo  sues  baby  moses  creator — 
would  have  given  even  polished  Nintendo  PR  chief  Bill  White 
nightmares. 


\ 


\  13 

FROM  RUSSIA  ^\ 

WITH  LOVE  ^ 


As  Nintendo  grew  and  its  target  audience,  the  classic  audience  for 
video  games  (young  boys),  was  nearly  saturated,  the  company  went 
after  new  groups  of  customers.  Peter  Main  says  it  was  a  strategic 
decision  from  early  on.  "We  wanted  to  break  out  from  the  historic 
video-game  user,  boys  eight  to  thirteen,  because  the  thirteen-year- 
old  boy  will  soon  be  fourteen  years  old  and  pass  from  our  grip.  Our 
objective  from  day  one  was  to  move  beyond  that  narrow  base." 

Girls  were  an  increasingly  important  market  for  Nintendo  in 
mid  to  late  1991,  when  more  powerful  systems  by  competitors  had 
distracted  some  of  Nintendo's  formerly  loyal  boys.  A  survey  Peter 
Main  commissioned  revealed  that  girls  from  six  to  fourteen  were 
the  primary  players  in  many  households.  Their  level  of  satisfaction 
was  "intensifying,"  according  to  the  market  researcher. 

In  Japan,  adults  had  never  been  considered  part  of  Nintendo's 


FROM    RUSSIA   WITH    LOVE 


market.  Inherent  in  the  Japanese  culture  was  jyukyu,  a  system  of 
ethics  dating  from  the  seventeenth  century,  which  held  that  the 
most  important  values  were  hard  work,  thriftiness,  and  serious- 
ness, and  that  luxury  and  leisure  were  a  waste  of  time.  Jyukyu  was 
behind  Japan's  phenomenal  productivity,  the  high  savings  rate  of 
its  people,  and,  ultimately,  its  obsession  with  education  and  work. 
Vestiges  of  jyukyu  made  it  unthinkable  for  many  adults  to  sit  in 
front  of  video-game  machines. 

Not  in  America.  Adults  in  the  West  comprised  many  of  the 
computer-  and  video-game  players,  and  increasingly  they  wrestled 
controllers  away  from  their  children  in  order  to  play  Nintendo. 

NOA  encouraged  them.  Arakawa  had  made  a  point  of  selling 
Nintendo  products  in  electronics  as  well  as  toy  stores.  Peter  Main 
says,  "We  wanted  to  be  in  electronics  outlets,  department  stores, 
and  discount  mass  merchants  in  addition  to  toy  stores  because  we 
knew  there  were  varying  signals  that  emanated  from  a  product 
depending  on  where  it  was  distributed."  Since  the  initial  test  in 
New  York  City,  Arakawa  had  fought  to  get  into  Circuit  City  and 
Crazy  Eddie — among  the  stereos  and  VCRs — as  well  as  Toys  "R" 
Us. 

A  growing  number  of  licensees  came  up  with  games  for  adults, 
alternatives  to  shoot-'em-ups  and  karate  games,  like  "Jeopardy," 
"IHvial  Pursuit,"  and  sophisticated  sports  games.  "Bases  Loaded," 
made  by  a  licensee  named  Jaleco,  was  particularly  ingenious,  even 
beyond  its  impressive  graphics  and  sound,  and  serious  baseball 
fans  could  obsess  over  its  trivia  and  decision-making  options.  In 
"Bases  Loaded  2,"  pitchers  were  guided  by  an  ERA  and  batters  by 
individual  statistics.  Programmed  into  the  game  were  what  Jaleco 
called  "a  special  player-performance  system"  that  programmed 
players  to  have  streaks  and  slumps.  You  decided  if  a  player  was 
having  a  bad  day  and  if  you  ought  to  bench  him.  More  than  4  mil- 
lion "Bases  Loaded"  games  were  sold. 

Adults  played  against  each  other,  against  their  children,  and  in 
secret  after  the  rest  of  the  family  had  gone  to  bed.  Nintendo  Power 
featured  celebrity  adults  who  played,  and  the  game  counselors 
heard  from  parents  who  had  devoted  entire  nights  to  practicing  so 
they  could  trounce  their  kids.  Still,  nothing  compared  to  the  adults 


29-4  GAME    OVER 


who  flocked  to  Nintendo  because  of  a  new  hardware  product 
launched  in  1989. 

Gunpei  Yokoi  and  his  forty-five-man  R&D  1  team  of  designers, 
programmers,  and  engineers  came  up  with  a  device  that  married 
the  NES  and  Game  &  Watch.  Like  the  NES,  it  was  a  video-game 
system  that  played  interchangeable  cartridges,  and  like  Game  & 
Watch,  it  was  quite  small.  Here  was  a  video-game  system  that  could 
be  played  anywhere — in  planes,  trains,  and  automobiles,  or  in  the 
quiet  of  a  bedroom.  Inside  its  pretty  package,  Game  Boy  combined 
portability,  miniaturization,  and  entertainment,  three  of  the  most 
important  attributes  of  emerging  technologies,  according  to  Greg 
Zachary  of  The  Wall  Street  Journal  Game  Boy  was  so  slick  that  a 
Sony  engineering  team  was  reportedly  chastised  by  managers  and 
executives  in  Japan  for  being  beaten  by  Nintendo.  "This  Game 
Boy  should  have  been  a  Sony  product,"  a  manager  is  said  to  have 
told  the  group,  which  worked  on  portable  entertainment  devices. 
Some  of  the  engineers  were  shuffled  to  new  departments,  and  one 
was  so  shamed  that  he  left  the  company. 

Game  Boy,  decidedly  playful  (Sony  probably  would  have  called 
it  Gamemflrt),  was  housed  in  a  gray  plastic  case  the  size  of  a  tran- 
sistor radio.  On  the  face  were  buttons  and  a  palm-sized,  black-and- 
sallow-green  liquid  crystal  display  (manufactured  by  Sharp).  Game 
Boy  was  released  at  a  lower  price  than  Yamauchi  had  aimed  for, 
$100.  He  predicted  Game  Boy  sales  of  25  million  units  within  three 
years. 

Once  again,  hardware  sales  were  only  the  beginning.  Game  Boy 
was  a  tiny  computer  that  could,  if  successful,  create  a  viable  soft- 
ware market  all  its  own.  Game  Boy  games,  the  size  of  a  saltine 
cracker,  would  sell  for  $20  to  $25,  so  a  sizable  sub-industry  was 
possible. 

When  Game  Boy  was  released,  it  was  criticized  because  it  didn't 
have  a  color  screen.  Yamauchi  had  decided  to  forgo  color  for  cost 
and  efficiency.  A  color  display  would  have  required  the  power  of 
four  or  eight  AA  batteries  instead  of  Game  Boy's  two.  Color  would 
also  have  drained  the  batteries  too  quickly.  Low-priced  color 
screens  had  other  problems.  They  were  difficult  to  see  in  bright 
light  (Game  Boy  was  difficult  enough  as  it  was).  Competitors  Sega, 


FROM    RUSSIA    WITH    LOVE  295 

Atari  Corp.,  and  NEC  released  expensive  hand-held  systems  with 
color  screens  that  sold  a  small  fraction  of  the  number  of  Game 
Boys.  Two  hundred  thousand  Game  Boys  sold  out  in  two  weeks  in 
Japan,  and  40,000  units  were  sold  the  first  day  in  the  United  States. 
NCL  sent  1.1  million  Game  Boys  to  the  United  States  in  its  initial 
shipment,  and  Toys  "R"  Us  tried — unsuccessfully — to  get  them  all. 

Of  course  lots  of  kids  played  Game  Boy — two  could  be  con- 
nected for  competitive  play — but  a  remarkable  aspect  of  its  success 
was  the  number  of  adults  who  played  it.  Game  Boys  were  fre- 
quently seen  in  first-class  compartments  on  cross-country  flights,  in 
corporate  lunchrooms,  and  in  desk  drawers  and  briefcases.  Presi- 
dent Bush,  in  the  hospital  in  May  1991,  was  pictured  in  newspapers 
commander-in-chiefing  a  Game  Boy. 

Nintendo  unleashed  Game  Boy  marketing  campaigns  that 
targeted  adults.  "This  Father's  Day  treat  Dad  like  a  kid,"  read  one 
of  Bill  White's  ads.  Another  ad  ran  in  an  airline  magazine  to 
attract  business  travelers.  "If  you're  reading  this  ad,  you're  very 
bored,"  the  copy  read.  "You've  mastered  the  safety  instructions  in 
every  language,  and  the  flight  attendant  won't  give  you  any  more 
almonds.  Now  what?"  The  choices:  "Travel  to  another  galaxy,  golf 
.  .  .  [all  with  Game  Boy].  Game  Boy  won't  ask  you  for  your  des- 
sert, and  fits  just  as  neatly  into  the  mouth  of  that  screaming  child 
beside  you  as  it  does  into  your  briefcase.  .  .  ." 

Minoru  Arakawa  first  saw  a  prototype  of  Game  Boy  in  Kyoto  in 
1987  and  promptly  topped  Yamauchi's  predictions.  Before  it  was 
over,  100  million  Game  Boys  would  sell  throughout  the  world,  he 
said.  To  reach  such  astronomical  levels,  however,  it  would  need  a 
monster  game,  and  Arakawa  saw  it  at  an  arcade-industry  trade 
show  in  June  1988,  where  Randy  Broweleit  of  Atari  Games  was 
showing  off  a  prototype  of  an  arcade  version  of  a  game  called 
"Tetris."  At  the  convention  with  Howard  Lincoln,  Arakawa  stood 
in  front  of  the  console  and  played,  transfixed.  Broweleit  told  Lin- 
coln that  Atari  Games  had  the  coin-op  rights  and  that  Atari's 
Tengen  had  the  rights  to  produce  a  home  video-game  version. 
Broweleit  said  that  "Tetris"  rights  had  also  been  sublicensed  in 
Japan — coin-op  rights  to  Sega  and  home-game  rights  to  Henk 
Rogers's  company,  Bullet-Proof  Software.  Arakawa  said  he  was 
pleased  that  "Tetris"  would  be  coming  out  on  the  NES.  He  did  not 


GAME    OVER 


say  he  was  also  pleased  that  there  was  no  mention  of  the  hand-held 
rights,  which  might  still  be  available. 

Back  in  Redmond,  Arakawa's  engineers  created  a  test  version  of 
"Tetris"  that  worked  with  a  prototype  Game  Boy.  When  Arakawa 
plugged  the  tiny  "Tetris"  into  Game  Boy  and  played  it,  it  was  as  if 
they  had  been  made  for  each  other.  The  "Tetris"  pieces  were  large 
enough  to  be  seen  easily  on  the  small  screen,  and  the  game  was 
simple  and  hypnotic.  Arakawa  believed  its  appeal  would  cut  across 
all  age  groups,  as  well  as  across  the  gender  line,  and  said,  "We 
must  have  this  game." 

Arakawa  instructed  Lynn  Hvalsoe,  the  company's  general  coun- 
sel under  Howard  Lincoln,  to  track  down  the  hand-held  "Tetris" 
rights,  but  she  couldn't  determine  who  held  them.  Apparently 
Atari  Games  had  bought  its  rights  from  Mirrorsoft,  the  London- 
based  software  group  owned  by  Maxwell  Communications,  and 
Mirrorsoft  claimed  it  had  secured  all  "Tetris"  rights  from  the  cre- 
ators in  the  Soviet  Union.  "They  were  giving  us  all  sorts  of  bull- 
shit," says  Howard  Lincoln.  "We  weren't  getting  anywhere."  The 
reaction  from  Mirrorsoft  made  Hvalsoe  suspicious,  and  she  re- 
ported to  Arakawa  that  Mirrorsoft's  ownership  of  the  rights  ap- 
peared dubious.  This  led  Arakawa  to  send  an  emissary  to  the 
Soviet  Union  to  attempt  to  contact  the  inventor  of  "Tetris." 

Alexey  Pajitnov  had  the  build  of  a  medium-sized  bear.  His  face 
was  framed  by  auburn  hair  and  a  harshly  clipped  beard.  He  had 
grown  up  in  Moscow,  where  his  father  was  an  art  and  theater  critic, 
and  his  mother  wrote  for  newspapers  and  for  a  weekly  cinema 
magazine.  As  a  child,  Pajitnov's  passions  were  mathematics  and 
movies.  As  a  rare  privilege  of  his  mother's  occupation,  he  was 
given  passes  to  the  yearly  Moscow  Film  Festival,  where  he  watched 
five  movies  a  day,  fifty  in  ten  days.  "It  was  the  only  window  to  the 
outside,"  he  says.  His  other  love,  math,  was  expressed  in  playing 
games  that  involved  geometry,  algebra,  and  other  systems  of  logic. 

When  Alexey  was  eleven  his  parents  divorced.  He  lived  with  his 
mother  in  a  one-room  state-owned  apartment.  He  was  seventeen 
when  they  were  able  to  acquire  a  private  apartment  in  a  modern, 
fourteen-story  building  at  49  Gersten  Street,  in  a  fancy  neighbor- 


FROM    RUSSIA   WITH    LOVE  237 


hood  of  embassies  and  hotels  not  far  from  the  Arbat,  Moscow's  far 
humbler  Champs-Elysees. 

Apartment  106  was,  by  Moscow's  bleak  standards,  spacious  and 
airy,  with  two  bedrooms,  a  fair-size  living  room,  and  a  small 
kitchen  with  a  view  of  St.  Basil's  Cathedral  in  Red  Square.  Book- 
shelf-lined walls  were  crowded  with  scientific  books,  computer 
manuals,  classic  novels  in  Russian,  French,  and  English,  and  books 
on  art  and  film.  On  other  walls  were  framed  prints  of  paintings  by 
Monet,  Renoir,  Matisse,  and  Modigliani. 

Alexey  was  a  good  student,  particularly  in  math;  when  he  was 
fourteen,  he  was  a  finalist  in  a  citywide  mathematics  competition, 
and  he  spent  the  last  three  years  of  school  in  a  specialized  math 
program.  During  that  time,  in  the  summer  he  turned  fifteen,  he  sat 
down  in  front  of  a  computer  for  the  first  time  and  created  his  first 
program,  a  number  game. 

"Mathematicians  are  usually  very  strange  people,"  Pajitnov  says. 
'They  are  fully  in  their  abstract  worlds,  and  I  was  there  with 
them."  But  he  had  other  interests  too.  With  friends  he  played 
cards,  drank  beer  or  vodka,  and  headed  to  the  countryside  for 
camping  expeditions.  He  hung  out  with  girls  and  was  in  every  way, 
he  says,  a  "normal  schoolboy." 

After  his  university  studies,  Pajitnov  took  a  position  at  the  Mos- 
cow Institute  of  Aviation,  a  technical  university,  in  the  department 
of  math  applications.  He  enjoyed  teaching  there,  but  one  day  he 
abruptly  quit.  His  passion  for  math  had  been  replaced  by  some- 
thing new:  by  the  universe  he  discovered  in  computers,  where  the 
exploration  of  numbers,  games,  programming  languages,  and 
mathematical  logic  had  no  limits.  Thereafter  computers  consumed 
him.  "It  doesn't  matter  to  a  hacker  what  he  is  working  on — it  could 
be  a  game  or  an  abstract  math  problem,  but  if  a  computer  is 
involved,  he  is  a  god  and  can  do  whatever  he  wants  inside  that 
world." 

This  new  interest  led  to  Pajitnov's  next  job,  at  the  Computer 
Center  of  the  Moscow  Academy  of  Science,  one  of  the  Soviet 
government's  preeminent  R&D  labs.  His  office  at  the  Computer 
Center  was  in  a  wood-paneled  room  crowded  with  a  dozen  metal 
desks  separated  by  chest-high  partitions.  There  he  hunkered  over 


GAME    OVER 


the  keyboard  of  an  archaic  Soviet  microcomputer,  an  Electronica 
60,  spending  long  days  and  many  nights  drinking  black  coffee, 
smoking  unfiltered  cigarettes,  and  exploring  artificial  intelligence 
and  the  capability  of  the  computer  to  recognize  the  human  voice. 
Inevitably,  he  also  created  games  and  puzzles. 

To  most  of  us,  puzzles  are  a  diversion,  but  for  Alexey  Pajitnov 
they  are  metaphors  and  mirrors  that  reflect  nature,  emotion,  and 
patterns  of  thought.  The  young  mathematician  had  turned  to  com- 
puters with  the  belief  that  they  could  model  consciousness.  Where 
better  did  electronics  and  humanity  collide  than  in  computer 
games?  At  their  best,  games  were  sublime  examples  of  the  inter- 
section of  logic  and  humanity.  They  worked  because  of  logic  and 
mathematics,  but  also  because  of  psychology  and  emotion.  The 
best  games  held  in  them  a  challenge,  but  also  a  reward  and  certain 
elemental  experiences:  discovery,  recognition,  frustration,  and 
completion. 

Inspiration  for  Pajitnov's  games  came  at  unexpected  moments. 
Visiting  an  aquarium  one  day,  he  wandered  past  tanks  of  eels  and 
seahorses,  a  shallow  pool  of  starfish  and  anemones,  and  a  large 
pool  of  rays,  salmon,  and  sharks.  He  stopped  in  front  of  a  tank  of 
flatfishes  and  became  transfixed  there,  staring  at  the  liquid  world 
of  the  flounder,  plaice,  and  sole.  The  fish  were  barely  distinguish- 
able from  the  rocks,  sand,  and  sea  grasses  on  which  they  rested. 
When  a  plaice  glided  over  white  gravel,  it  metamorphosed  before 
his  eyes,  as  if  its  orange  spots  had  been  bleached  white.  A  brown- 
speckled  flounder  floated  over  a  bed  of  kelp  and  turned  a  soft 
green.  Pajitnov  was  mesmerized  as  he  contemplated  using  nature's 
splendid  invention  in  a  puzzle;  he  envisioned  chameleon  pieces 
that  hid  by  altering  their  colors  or  shapes. 

Another  time,  walking  along  a  quiet  boulevard,  Pajitnov  stopped 
to  peruse  a  sidewalk  display  of  imported  knickknacks — porcelain 
dolls,  paper  umbrellas,  and  brass  incense  burners.  From  a  clay  pot 
he  withdrew  a  Chinese  fan.  As  he  unfolded  the  pleats,  what  had 
been  obscured  was  revealed:  a  crimson  crane  surrounded  by 
golden  flames.  Laughing  aloud,  he  imagined  how  fantastic  it  would 
be  to  re-create  in  a  game  the  essential  emotion  of  the  experience — 
recognition. 


FROM    RUSSIA   WITH    LOVE  899 


Pajitnov  had  read  about  Pentominoes,  geometric  puzzles  de- 
signed by  an  American  mathematician  named  Solomon  Golomb. 
The  puzzle  pieces  were  formed  out  of  different  configurations  of 
five  squares  (a  line,  a  "T,"  an  "L"  shape,  and  so  on).  The  pieces 
could  be  fitted  together  into  a  perfect  rectangle. 

In  a  small  toy  shop,  Pajitnov  found  a  Pentomino  puzzle.  When 
he  removed  the  dozen  pieces  from  the  rectangular  case  and  mixed 
them  up,  he  discovered  that  "it  was  a  big  problem"  to  put  them 
back.  He  imagined  a  computerized  version  of  the  game  in  which 
randomly  generated  pieces  would  appear  one  at  a  time  and  with 
intensifying  rapidity.  An  electronic  version  of  Pentomino  would 
require  very  quick  thinking.  He  envisioned  the  puzzle  pieces  plum- 
meting down  from  computer  heaven  and  the  frantic  attempt  to 
arrange  them. 

Sitting  in  front  of  his  computer,  Pajitnov  experimented  with  per- 
mutations of  Pentomino  and  finally  settled  on  a  simpler  version, 
with  each  piece  made  out  of  four  instead  of  five  squares.  From 
tetra,  a  form  of  the  Greek  word  for  four,  he  named  the  game 
"Tetris." 

There  is  a  theory  in  psychology  that  humans  can  process  seven 
things  (plus  or  minus  two)  at  once:  seven  digits,  seven  shapes, 
seven  concepts.  It  is  the  reason  most  people  can  remember  seven- 
digit  phone  numbers  but  have  difficulty  beyond  that.  It  so  hap- 
pened that  seven  different  configurations  of  the  four  squares  were 
possible.  Seven  "Tetris"  shapes,  Pajitnov  reasoned,  could  be  mem- 
orized and  instantly  recognized,  and  the  reaction  to  any  one  of 
them  could  be  almost  visceral,  reflexive. 

Since  the  Electronica  60  had  no  graphics  capabilities,  Pajitnov's 
puzzle  pieces  were  actually  spaces  outlined  by  brackets.  Generated 
by  the  computer  and  sent  onto  the  screen,  they  would  descend 
slowly  at  the  easiest  levels,  fast  and  furiously  at  the  most  difficult. 
The  player  had  until  they  reached  the  screen's  bottom  to  turn  them 
or  move  them  so  that  they  would  fit  snugly  into  a  solid  row  when 
they  landed.  If  the  pieces  did  fit  perfectly  together  and  an  unbro- 
ken row  was  formed,  it  disintegrated:  success!  If  any  spaces  were 
left  unfilled,  however,  that  row  became  the  beginning  of  a  wall  that 
would  grow  until  it  overtook  the  screen. 


300  GAME    OVER : 

Pajitnov  realized  his  game  would  be  more  fun  if  the  computer 
code  were  translated  into  real-time  graphics — that  is,  if  the  brack- 
ets delineating  the  "Tetris"  pieces  were  replaced  by  the  real,  mov- 
able shapes  they  represented.  A  young  hacker  named  Vadim 
Gerasimov  set  out  to  create  a  color  version  of  "Tetris"  that  would 
play  on  IBM-compatible  computers. 

Gerasimov  was  sixteen  years  old  at  the  time  and  was  still  attend- 
ing high  school,  but  he  was  so  far  ahead  of  his  peers  that  his 
teachers  allowed  him  to  drop  in  for  classes  a  couple  of  times  a 
semester.  Raised  by  his  mother,  a  nuclear  physicist,  Gerasimov  had 
a  revelation  when  he  got  his  hands  on  a  computer  for  the  first  time. 
"He  saw  the  computer  and  forgot  about  the  other  world,"  Alexey 
Pajitnov  says. 

The  wiry-haired  Gerasimov,  with  enormous  blue  eyes  behind 
thick-lensed  glasses,  was  bean-thin  and  tall,  with  a  slight  stoop,  and 
often  wore  the  same  shapeless  gray  wool  sweater.  Another 
programmer  named  Dmitri  Pevlovsky  introduced  him  to  Pajitnov, 
who  put  the  young  boy  to  work.  Gerasimov  had  a  knack  for  finding 
glitches  in  programs,  and  had  technical  skills  that  neither  Pevlov- 
sky nor  Pajitnov  possessed.  He  had  taught  himself  to  program  with 
Microsoft's  DOS  operating  system  from  the  West.  He  knew  the 
BASIC  and  PASCAL  languages,  and  how  to  perform  miscellane- 
ous feats  on  computers,  breaking  supposedly  unbreakable  copy 
protections  and  ferreting  out  viruses.  Computer  Center  scientists 
twice  his  age  asked  for  his  help  on  programs,  occasionally  slipping 
the  boy  a  few  rubles. 

Gerasimov  worked  with  Pajitnov  for  two  months  to  convert 
"Tetris"  to  work  on  an  IBM-compatible  computer.  In  the  end,  the 
"Tetris"  pieces  lit  up  in  solid  colors.  Pevlovsky  added  a  table  that 
tracked  high  scores.  When  the  program  was  bug-free,  he  copied  it 
and  distributed  disks  throughout  the  Computer  Center.  His  col- 
leagues congratulated  him  on  his  brilliant  and  addictive  program. 
A  friend  who  worked  at  a  psychology  institute  gave  the  game  to  his 
staff,  but  soon  realized  that  not  much  work  was  getting  done  be- 
cause of  it.  One  night,  after  everyone  had  gone  home,  the  man 
went  from  desk  to  desk  collecting  the  "Tetris"  disks  and  destroyed 
them  all. 


FROM    RUSSIA   WITH    LOVE  301 


All  across  Moscow  the  game  was  catching  on  in  computer  circles 
— "like  a  wildfire,"  says  Pajitnov.  In  a  computer-game  competition 
held  in  Zelenodolsk,  in  November  1985,  "Tetris"  took  second 
prize. 

Pajitnov  worked  on  other  programs,  including  one  called  Biog- 
rapher, a  sort  of  therapist  in  a  box.  Information  about  someone's 
life  was  fed  into  the  program,  which  revealed  behavioral  patterns 
and,  in  a  crude  way,  drew  conclusions.  The  program  was  a  simple 
implementation  of  the  idea  that  a  computer  could  be  more  objec- 
tive and  more  patient  than  a  human  psychologist.  Through  early 
1986,  Pajitnov  continued  to  work  on  Biographer  and  other  explo- 
rations of  simple  artificial  intelligence.  In  the  meantime,  he  sug- 
gested to  one  of  his  superiors  that  something  should  be  done  with 
"Tetris"  outside  the  U.S.S.R.  "We  had  no  copyright  laws  at  all,"  he 
says.  "Certainly,  by  the  spirit  of  our  law  we  had  no  right  to  sell 
anything  to  anyone.  We  could  do  nothing  for  personal  gain."  It 
would,  however,  be  a  significant  accomplishment  to  have  a  pro- 
gram published. 

Victor  Brjabrin,  who  oversaw  twenty  researchers  at  the  Com- 
puter Center,  was  particularly  enthusiastic  about  "Tetris,"  and  he 
sent  an  evaluation  copy  of  the  game  to  SZKI,  the  Institute  of 
Computer  Science  in  Budapest.  Hungarian-born  Robert  Stein, 
who  ran  Andromeda,  a  software  company  in  London,  happened  to 
be  visiting  SZKI  at  the  time. 

Born  in  1934,  Stein  arrived  in  Britain  in  1956  as  a  political 
refugee.  He  first  got  work  as  an  instrument-  and  toolmaker  in 
London.  Later  he  worked  for  Olivetti,  selling  adding  ma- 
chines, then  left  that  business  to  sell  mechanical  check-writing 
machines  while  studying  marketing  at  night.  In  business  school 
he  discovered  that  he  was  as  good  at  training  as  he  was  at 
selling,  and  he  got  a  job  teaching  engineers  how  to  communi- 
cate with  clients.  He  consulted  in  this  field  for  a  while,  serv- 
ing such  major  clients  as  Texas  Instruments.  After  that  he  set 
up  a  company  to  sell  TI  calculators,  and  eventually  sold  digi- 
tal watches  and  the  first  television  game,  Atari's  "Pong." 
When  that  company  went  bankrupt,  Stein  founded  a  new 
company  to  sell  chess  computers  to  Harrods  and  other  depart- 


302  GAME    OVER 


ment  stores.  The  business  grew  when  he  started  selling  Com- 
modore's Vic  20  computer.  He  soon  realized  the  computer 
sold  in  direct  proportion  to  the  amount  of  software  available 
for  it,  which  led  him  to  the  software  business. 

When  Commodore  was  preparing  to  introduce  their  C-64,  a 
more  powerful  computer,  they  asked  Stein  to  return  to  Hungary  in 
search  of  innovative  software.  In  1982  he  helped  establish  a  soft- 
ware company  there  with  Hungarian  engineers.  To  sell  their  games 
and  business  programs,  Stein  founded  Andromeda,  which  kept  25 
percent  of  whatever  the  Hungarian  programs  brought  in. 

From  his  London  office,  Stein  sold  the  rights  to  Hungarian 
products  to  Commodore  and  software  companies  in  England  such 
as  Mirrorsoft,  and  he  made  a  number  of  deals  with  Jim  Macko- 
nochie,  the  man  who  ran  Mirrorsoft  for  the  Maxwells. 

In  June  1986,  Stein  was  at  SZKI  in  Budapest  to  see  Hungarian 
programs  when,  on  a  nearby  computer,  he  noticed  "Tetris."  He  sat 
down  to  try  the  game  and  couldn't  stop  playing.  "I  was  not  a  game 
player,"  he  said,  "so  if  /  liked  it,  it  must  be  a  very  good  game."  He 
asked  the  director  of  the  institute  where  the  game  had  come  from, 
and  was  told  that  it  had  been  sent  by  a  friend  at  the  Computer 
Center  of  the  Academy  of  Science  in  Moscow. 

The  same  day,  Stein  claims,  he  was  shown  another  "Tetris,"  this 
one  on  a  Commodore  64  and  Apple  II.  It  was  the  same  game,  Stein 
says  he  was  told,  adapted  by  Hungarian  programmers.  Although 
they  had  obviously  converted  the  Russian  program  to  the  other 
machines,  Stein  says  he  told  the  Hungarians  he  would  license  the 
original  PC  game  from  the  Russians  and  the  Commodore  and 
Apple  versions  from  the  Hungarians. 

Back  in  London,  Stein  sent  a  cable  to  the  Moscow  Computer 
Center  indicating  that  he  was  interested  in  "Tetris."  Victor 
Brjabrin  saw  the  telex  and  delivered  it  to  Pajitnov.  "It  looks  like 
someone  is  interested  in  your  game,"  he  said. 

Since  there  was  no  one  else  to  do  it,  Pajitnov  began  the  negotia- 
tions himself.  "We  had  no  idea  what  to  do,"  Pajitnov  says.  "It  was 
an  absolutely  new  experience  for  us." 

Answering  the  telex  was  comically  difficult.  Pajitnov's  English 
was  a  little  sketchy,  so  he  composed  an  answer  in  Russian  and 
showed  it  to  the  chief  of  the  computer  center,  Professor  Ju.  G. 


FROM    RUSSIA    WITH    LOVE  303 

Evtushenko,  who  had  to  sign  an  approval  to  have  it  translated.  He 
then  had  to  figure  out  how  to  send  it. 

Pajitnov  had  no  access  to  a  telex  machine,  but  he  learned  that 
there  was  one  in  another  division  of  the  Academy  of  Science  that 
he  might  be  able  to  use  if  he  could  gather  the  required  authoriza- 
tions. His  requisition  had  to  be  approved  by  his  supervisors  and 
half  a  dozen  others  at  the  Academy.  It  was  weeks  before  he  could 
send  back  the  simple  answer:  "Yes,  we  are  interested.  We  would 
like  to  have  this  deal." 

Stein  was  already  shopping  the  game  around.  He  had  showed  it 
to  representatives  of  British  and  American  software  companies. 
His  plan  was  to  determine  if  there  was  interest,  and  then,  if  it 
seemed  worth  his  while,  to  secure  the  rights;  he  assumed  it  would 
be  easy  to  convince  the  Soviets  to  make  a  deal.  As  it  happened  it 
took  more  than  a  year  finally  to  secure  the  rights  to  Tetris.  On 
reflection,  Mr.  Stein  thought  that  it  would  have  been  easier  to  use 
the  Commodore  64  version  produced  by  the  Hungarians  as  a  mas- 
ter source. 

Stein  pitched  "Tetris"  to  Jim  Mackonochie  at  Mirrorsoft  and  to 
an  American  software  company,  Broderbund,  but  neither  com- 
pany showed  much  interest  in  it.  Mackonochie  wasn't  convinced 
the  game  would  sell,  so  he  showed  it  to  the  two  men  who  ran 
Mirrorsoft's  sister  company  in  America,  Spectrum  Holobyte,  tell- 
ing them  he  would  license  "Tetris"  for  Europe  if  they  would  do  so 
for  the  United  States  and  Japan. 

Phil  Adam  and  Gilman  Louie  ran  the  California-based  Spec- 
trum Holobyte,  80  percent  of  which  was  owned  by  Robert  Max- 
well's Pergamon  Foundation.  Adam,  with  impeccably  trimmed 
hair  and  fingernails  and  perfectly  matched  casual  clothing  (wool 
sweaters,  khaki  slacks,  and  oxford-cloth  shirts),  was  a  smart  and 
well-liked  manager  of  Spectrum  Holobyte,  which  was  known  for 
its  flight  simulators.  "Falcon,"  created  by  Gilman  Louie,  a  com- 
puter whiz,  was  one  of  the  best  flight-simulation  games  available 
for  PCs,  and  it  sold  more  than  half  a  million  copies.  Spectrum 
Holobyte  went  on  to  create  a  host  of  other  computer  games,  in 
addition  to  simulators  for  the  military. 

His  tortoiseshell  glasses  pushed  up  on  his  thin  nose,  Adam  sat 
down  at  three  o'clock  one  afternoon  in  front  of  a  computer  on 


GAME    DVER 


which  "Tetris"  had  been  booted.  At  seven,  dinner  companions 
who  had  been  waiting  for  him  for  an  hour  came  and  literally  had 
to  unplug  the  computer  in  order  to  drag  him  away. 

Louie,  tall  and  slender,  his  jet-black  hair  untamed,  had  thick- 
framed  glasses  and,  behind  them,  a  curious,  decisive  expression. 
He  too  played  "Tetris"  and  loved  it.  After  conferring  with  Adam, 
he  told  Mackonochie,  "Put  it  in  a  red  box  and  get  the  rights." 

According  to  Robert  Stein,  Mirrorsoft  and  Spectrum  Holobyte 
bought  all  the  "Tetris"  rights  except  for  the  arcade  and  hand-held 
versions.  From  these  companies,  Stein  got  a  small  advance — about 
3,000  pounds — against  a  fluctuating  royalty  of  between  7.5  and  15 
percent. 

In  his  next  telex  to  the  Soviets,  sent  on  November  5, 1986,  Stein 
offered  a  firm  deal:  the  Russians  would  get  75  percent  of  whatever 
he  collected  for  "Tetris."  This  sum  would  be  a  percentage  of  gross 
sales.  He  also  offered  a  $10,000  advance. 

Pajitnov  responded  favorably  to  the  offer  in  a  telex  on  Novem- 
ber 13.  Signed  by  the  Computer  Center's  Evtushenko,  it  said  that 
the  Academy  of  Science  was  ready  to  transfer  the  copyright  to 
Andromeda.  In  another  telex,  Stein  had  offered  to  pay  the  Com- 
puter Center,  in  part,  with  Commodore  computers,  and  the  Sovi- 
ets agreed  to  this  as  well.  They  also  noted  that  the  deal  was  for  the 
IBM-compatible  version  of  "Tetris"  only;  they  would  consider 
non-IBM  versions  of  "Tetris"  in  the  future. 

Alexey  Pajitnov  now  claims  he  indicated  only  that  the  deal 
sounded  good.  He  did  not  mean  to  give  Stein  a  firm  go-ahead.  "I 
had  no  idea  that  this  kind  of  polite  telex  can  be  a  document," 
Pajitnov  says.  "I  think  of  a  document  as  something  very  serious 
which  needs  to  be  signed,  changed,  and  signed  again;  then  you 
shake  hands  and  drink  champagne." 

Stein  paved  the  way  for  the  signing  of  a  contract  in  telexes  to 
Evtushenko.  The  Academy  of  Science's  licensing  group,  Licen- 
snauka  Prasolov/AcademySoft,  took  over  negotiations  and  sent 
Stein  a  cable  in  late  December,  inviting  him  to  come  to  Moscow. 

When,  much  later,  Stein  did  visit  Moscow,  he  arrived  with  plans 
to  talk  to  the  people  at  the  Computer  Center  about  establishing  a 
relationship  similar  to  the  one  he  had  in  Hungary:  he  would  act  as 
agent  to  sell  Soviet-created  software  in  the  West.  His  immediate 


FROM    RUSSIA    WITH    LOVE  305 


concern  was  to  leave  with  a  signed,  legal  contract  that  confirmed 
his  rights  to  "Tetris."  He  met  with  a  group  of  the  Soviets  in  a  hall 
at  the  Academy,  a  cavernous,  poorly  heated,  ill-lit  room,  as  grim 
as  anti-Soviet  propaganda  in  the  West  would  have  painted  it. 
Down  the  center  of  the  room  was  a  massive  wooden  slab,  a  table 
that  could  have  seated  fifty,  across  which  Stein  faced  six  Russians. 
One  of  them  was  Alexey  Pajitnov,  the  chain-smoking  creator  of 
the  game. 

Trying  to  ally  himself  with  Pajitnov,  Stein  said,  "Gentlemen,  in 
our  country  the  most  important  person  is  the  one  who  designs  the 
game.  I'm  here  to  listen  to  his  wishes,  because  if  we  don't  sign  a 
contract,  it  is  he  who  will  suffer." 

Stein  also  tried,  unsuccessfully,  to  hide  his  eagerness.  The  con- 
tract he  had  drawn  up  was  on  the  table  in  front  of  him,  ready  for 
the  Russians  to  sign,  so  he  was  unprepared  to  be  met  with  suspi- 
cion. 

The  Soviets  were  swimming  in  uncharted  waters — software  li- 
censing was  baffling— yet  they  made  up  for  their  naivete  with  cau- 
tion and  obstinacy.  If  Stein  offered  75  percent,  they  pushed  for  80; 
if  he  offered  $10,000,  they  held  out  for  $25,000.  They  asked  for 
protections  and  limitations.  The  details  were  hammered  out  over 
several  days  of  meetings,  but  Stein,  although  he  caved  in  to  their 
demands  for  a  higher  advance  and  royalty,  left  Moscow  without  a 
signed  contract. 

The  Russians  had  tried  Stein's  patience,  and  he  wondered 
whether  the  Mirrorsoft  and  Spectrum  Holobyte  people  should 
abandon  the  PC  version  and  use  the  Commodore  64  version  cre- 
ated by  the  Hungarian  programmers,  which  they  had  licensed  si- 
multaneously with  the  PC  version  from  the  Russians.  Stein  later 
said  that  the  biggest  mistake  he  made  was  that  this  did  not  hap- 
pen. 

But  it  was  too  late  for  that.  Mirrorsoft  and  Spectrum  Holobyte 
had  seen  great  value  in  the  fact  that  "Tetris"  was  the  first  game  to 
come  from  behind  the  Iron  Curtain,  which  was  still  intact  at  the 
time.  As  Gilman  Louie  had  suggested,  they  slickly  packaged 
"Tetris"  in  a  red  box,  emphasizing  that  it  was  from  Russia  with 
love.  Atop  an  illustration  of  St.  Basil's  Cathedral,  "Tetris"  was 
written  in  Cyrillic,  the  final  character  taking  the  form  of  a  hammer 


306  GAME    OVER 


and  sickle.  Programmers  at  Spectrum  Holobyte  in  the  United 
States  added  battle  scenes  as  background  pictures  and  a  simple 
animation  that  played  at  the  start  of  the  game:  a  Cessna  flew 
across  the  screen  and  landed  in  Red  Square.  It  was  a  homage  to 
Matthias  Rust,  the  young  West  German  pilot  who  had  flown  his 
small  plane  from  Helsinki  to  Moscow,  past  all  the  Soviet  radar  and 
air  defenses,  and  landed  in  Red  Square,  embarrassing  the  Central 
Committee.  Rust  had  been  arrested,  tried,  and  imprisoned. 

Other  modifications  to  the  program  were  made.  One  was  the 
addition  of  a  "boss  button"  to  some  versions  of  "Tetris";  when  a 
certain  key  was  pushed,  the  game  instantly  disappeared  and  the 
computer  would  appear  to  be  running  a  serious  accounting  pro- 
gram. Also  added  were  high-quality  graphics,  and,  for  computers 
with  sound-generation  capabilities,  music. 

In  April  1987,  Stein  informed  the  Soviets  that  the  rights  to 
"Tetris"  had  been  sold  to  Mirrorsoft,  the  Maxwell  Communica- 
tions software  company,  and  to  its  American  counterpart,  Spec- 
trum Holobyte.  He  specifically  noted  that  the  rights  were  only  for 
the  IBM  PC  (and  compatible)  versions  of  "Tetris."  By  then  he  had 
given  up  plans  to  license  separate  Apple  and  Commodore  versions 
of  the  game  from  Hungary,  and  he  noted  that  there  would  be 
separate  advances  for  those  versions  when  they  were  launched.  He 
pressed  for  a  contract  to  be  signed. 

In  June,  Stein  signed  the  contract  he  had  negotiated  among 
Andromeda,  Mirrorsoft,  and  Spectrum  Holobyte.  The  contract 
designated  that  he  was  selling  the  "Tetris"  rights  for  the  IBM  PC, 
although  the  rights  included  "any  other  computer  system."  In  ad- 
dition to  warranting  that  the  work  had  no  obscene  or  indecent 
material,  Stein  confirmed  that  he  was  the  rightful  owner  of  the 
copyright,  free  to  grant  the  license,  although  there  was  still  no 
contract  with  the  Soviets. 

In  a  letter  sent  to  the  Academy  of  Science  in  December,  Stein 
pleaded  with  the  Soviets  to  confirm  his  rights  to  "Tetris,"  and 
offered  "to  travel  anywhere  and  meet  anybody"  in  order  to  get  a 
signed  contract.  If  nothing  else,  he  wrote,  "we  need  a  simple  letter 
stating  that  you  approve  the  terms  under  which  we  have  signed 
this  contract  with  Mirrorsoft." 

Mirrorsoft  and  Spectrum  Holobyte,  unaware  of  Stein's  troubles, 


FROM    RUSS  I  A   WITH    LOVE  307 


released  "Tetris"  for  personal  computers  in  Europe  and  America 
in  January  1988.  It  sold  well  in  computer  stores  and  received  rave 
reviews. 

A  reviewer  for  The  Times  Educational  Supplement  quoted  from 
the  Mirrorsoft  press  material  and  wrote,  "Another  'remarkably 
simple,  addictive,  abstract  puzzle  game'  doesn't  fill  me  with  excite- 
ment, but  the  provenance  of  this  one  is  interesting.  It  was  invented 
by  a  30-year-old  researcher  at  the  USSR  Academy  of  Sciences. 
Coding  was  done  on  an  IBM  personal  computer  by  a  teenage 
student  at  Moscow  University."  Many  British  computer  journals 
heaped  on  praise.  "I  warn  you.  The  addictive  power  of  'Tetris'  is 
frightening,"  a  reviewer  wrote.  "It  sounds  so  simple  that  you  can- 
not believe  your  abysmal  score,  so  you  try  again  and  again;  only  a 
manic  lunge  at  the  reset  switch  can  save  you."  Another  reviewer 
called  it,  "a  stonking  good  game,"  reporting  that  it  had  been 
banned  from  the  PCs  at  Mirrorsoft's  central  office,  "and  no  doubt 
it  will  be  banned  elsewhere."  Yet  another  reviewer  concluded, 
"There  are  very  few  games  that  are  so  addictive  you  find  yourself 
playing  them  in  your  sleep,  but  Tetris'  did  exactly  that  for  me. 
.  .  .  After  a  poor  night  watching  shapes  float  down  past  my  closed 
eyelids,  I  had  to  be  firm  with  myself  and  refuse  to  play  it  again  for 
at  least  48  hours.  I  cannot  give  a  higher  recommendation." 

In  Moscow,  meanwhile,  Pajitnov  was  busy  with  his  day-to-day 
tasks  at  the  Computer  Center.  A  version  of  Biographer  was  work- 
ing well;  he  wondered  if  it  could  be  sold  as  educational  software. 
In  discussions  about  it,  he  met  with  a  newly  created  Soviet  organi- 
zation called  Elorg— short  for  Electronorgtechnica,  the  ministry 
for  the  import  and  export  of  hardware  and  software.  In  his  meet- 
ing with  an  Elorg  director  named  Alexander  (Sasha)  Alexinko, 
Pajitnov  mentioned  the  difficulties  he  was  having  licensing 
"Tetris."  Alexinko  interrupted  him.  Licensnauka  and  the  Academy 
of  Science  shouldn't  be  negotiating  at  all,  he  said.  They  were  aca- 
demic institutions,  which  were  forbidden  to  indulge  in  commerce. 
This  was  Elorg's  domain,  and  Alexinko  said  he  would  take  over 
the  "Tetris"  negotiations. 

Examining  the  communications  between  Moscow  and  London, 
Alexinko  concluded  that  Pajitnov  had  blundered  in  his  negotia- 


3Q8  GAME    OVER 


tions,  and  that  his  telexes  could  have  been  misinterpreted.  Now 
the  inventor  became  the  target  of  blame.  "You  allowed  this  game 
to  be  published  without  our  approval,"  he  was  told.  "We  must  stop 
it  now." 

Stein,  further  and  further  out  on  a  limb,  having  sold  the  rights 
to  a  game  he  didn't  own,  now  heard  from  Elorg.  It  was  taking  over 
"Tetris"  negotiations,  and  his  deal  was  off.  The  Soviets  were  going 
to  take  over  the  international  sale  of  "Tetris"  directly. 

Backed  into  a  corner,  Stein  composed  a  carefully  worded  memo 
to  Moscow.  He  threatened  to  create  a  scandal  for  the  Soviets.  It 
would  look  very  bad,  he  said,  if  the  Soviet  state  stopped  a  com- 
mercial deal  at  this  point;  it  would  be  extremely  embarrassing  in 
the  international  community.  On  the  other  hand,  here  was  a 
chance,  he  pointed  out,  to  begin  an  alliance  that  could  be  politi- 
cally and  economically  significant.  A  deal  had  to  be  consummated. 

Stein  and  Elorg  tested  one  another  with  tentativeness,  straining 
over  minor  points,  but  finally  agreed  that  a  deal  could  be  made. 
Stein  flew  to  Moscow  to  meet  with  Elorg's  Alexinko  in  late  Febru- 
ary 1988.  On  February  24,  a  written  contract  was  proposed  that 
included  a  stipulation  that  Elorg  had  to  approve  any  versions  of 
"Tetris"  created  in  the  West.  It  also  gave  Andromeda  the  right  to 
adapt  "Tetris"  to  "different  types  of  computers." 

Stein  and  the  Soviets  negotiated  for  four  days  to  finalize  a  con- 
tract. Even  after  this  there  was  long-distance  fine-tuning  for  sev- 
eral months  until  finally,  after  almost  two  years'  worth  of  draft 
agreements,  one  was  signed  in  May  1988.  Stein  breathed  an  enor- 
mous sigh  of  relief:  he  had  successfully  confirmed  his  exclusive 
rights  to  sell  "Tetris"  for  computers.  In  a  memo,  he  told  Mirror- 
soft  that  the  contract  included  "TV  games,"  but  excluded  coin-op 
(arcade),  hand-held  games,  and  other  concepts  "which  we  did  not 
dream  about  yet." 

In  the  meantime,  "Tetris"  had  become  the  best-selling  game  in 
England  and  the  United  States,  publicized  by  word  of  mouth  and 
on  computer  networks.  In  the  United  States,  in  1988  "Tetris"  re- 
ceived the  Software  Publishers  Association  award  in  two  catego- 
ries: Best  Original  Game  Achievement  and  Best  Entertainment 
Program. 


FROM    RUSS  I  A   WITH    LOVE  309 


An  article  about  "Tetris"  from  a  London  computer  magazine 
reached  Elorg  in  Moscow.  It  described  the  version  of  "Tetris" 
that  was  being  sold  in  the  West.  It  mentioned  the  graphics— the 
battle  scenes  and  the  image  of  Matthias  Rust  flying  his  plane 
across  the  Russian  sky  and  into  Red  Square.  Alexinko  showed 
the  article  to  Pajitnov,  who  was  amused  by  the  reference  to 
Rust.  He  was  not  amused,  however,  by  the  battle  scenes. 
Pajitnov  had  come  to  view  "Tetris"  as  a  small  but  meaningful 
bridge  between  cultures  at  a  time  when  the  Cold  War  was  thaw- 
ing. "Tetris"  was  a  game  of  the  intellect,  completely  nonviolent. 
He  informed  Stein  that  he  wanted  "Tetris"  to  be  "a  peaceful 
game  heralding  a  new  era  in  the  relationship  between  superpow- 
ers and  their  attitude  toward  world  peace."  The  bureaucrats  in 
Moscow  were  far  more  concerned  about  the  reference  to  Rust. 
The  Central  Committee  viewed  the  young  pilot  as  a  terrorist 
and  did  not  consider  the  invasion  of  its  air  space  a  practical 
joke.  Broadcast  around  the  world,  Rust's  "raid"  had  been  a 
great  humiliation. 

The  Soviets  expressed  their  "grave  concerns"  in  their  next 
meeting  with  Stein,  who  immediately  contacted  Jim  Mackonochie. 
"It  would  be  useful  if  all  battle  scenes,  as  background  pictures, 
would  disappear,"  he  wrote,  "and  planes  flying  across  the  title 
screen  .  .  .  would  be  omitted."  As  a  result,  Mackonochie  and 
Gilman  Louie  revised  their  games  again. 

Stein  felt  the  Soviets  had  to  be  placated  as  much  as  possible  if 
he  was  going  to  be  able  to  obtain  other  "Tetris"  rights  that  Mirror- 
soft  wanted,  particularly  the  coin-operated  and  hand-held  rights. 
Atari  Games  was  already  preparing  to  release  its  own  "Tetris" 
arcade  game  in  America,  and  it  had  sold  the  rights  to  Sega  to 
release  the  arcade  game  in  Japan.  (Mirrorsoft  had  gone  ahead  and 
sold  Atari  Games  the  right  to  do  this  based  on  Stein's  assurance 
that  they  were  forthcoming.)  Stein,  however,  was  in  the  midst  of 
another  sluggish  negotiation.  He  had  made  a  firm  offer  for  the 
coin-operated  rights  in  July  1988— a  guarantee  of  $30,000  as  an 
advance  against  royalties— but  there  had  been  no  response. 

Stein  telexed  a  month  later,  noting  that  he  was  being  "pres- 
surised" and  needed  an  agreement  by  mid-August. 
Alexinko  met  with  Stein  in  Paris  on  July  5.  While  Stein  pushed 


31D  GAME    OVER 


for  more  rights,  especially  the  coin-op  rights,  the  Russian  had  an- 
other agenda.  He  intended  to  register  his  dissatisfaction  with  the 
results  of  the  deal  that  had  already  been  signed  because  no  checks 
were  coming  in  from  Andromeda. 

Stein  explained  that  it  took  time  for  money  to  be  dispersed  from 
company  to  company,  but  promised  he  would  do  what  he  could  to 
expedite  the  royalty  payment  process.  Alexinko  wanted  a  penalty 
for  late  payments  to  be  agreed  upon,  and  threatened  to  withhold 
any  new  rights  until  the  situation  was  remedied. 

More  telexes  were  fired  back  and  forth  between  Stein  and  Alex- 
inko after  they  had  returned  to  their  home  bases.  Stein  implored 
the  Russians  to  grant  him  the  coin-op  deal,  while  Alexinko,  re- 
sponding in  a  tersely  worded  telex,  indicated  that  the  existing  deal 
was  not  satisfactory  "because  no  payment  is  effective  yet,"  even 
though  "Tetris"  had  been  "more  than  six  months  on  the  market." 

In  another  telex  he  asked  Stein  to  add  a  clause  to  the  original 
agreement  that  stated  that  a  5  percent  fee  would  be  charged 
monthly  for  late  payments.  Alexinko  insisted  that  this  clause  was 
important  "to  expedite  the  positive  decision"  regarding  the 
"Tetris"  coin-op  rights. 

Stein  sent  word  that  he  agreed,  and  once  again  begged  Alexinko 
to  sign  a  coin-op  contract  because  "someone  will  steal  the  product 
from  under  our  noses." 

Typically,  a  company  that  licenses  a  game  will  exploit  those 
rights  as  much  as  possible  with  sublicenses  to  other  companies  for 
other  markets.  Spectrum  Holobyte  and  Mirrorsoft  had  a  hit  game 
on  their  hands,  and  it  was  not  surprising  that  they  set  about  to  sell 
all  the  sub-rights  they  could.  The  chart  of  "Tetris"  licenses  and 
sublicenses  was  beginning  to  look  like  a  tangled  family  tree. 

Henk  Rogers,  who  had  seen  Spectrum  Holobyte's  computer 
game  at  an  electronics  trade  show  in  January  1988,  went  after  the 
rights  to  release  the  game  in  Japan  on  computers,  video-game 
systems,  and  coin-op  arcade  machines.  Since  Spectrum  Holobyte 
had  been  granted  the  rights  for  Japan  in  the  deal  with  Stein,  Rog- 
ers negotiated  with  Gilman  Louie.  Two  separate  deals— one  for 
computer-game  (floppy-disk)  rights,  another  for  video-game  rights 


FROM    RUSSIA    WITH    LOVE  31    1 


— were  agreed  upon.  Rogers  also  wanted  the  coin-op  game  rights, 
but  discussions  for  these  were  put  on  hold. 

The  day  after  Rogers  signed  a  deal  with  Spectrum  Holobyte  for 
computer-game  "Tetris"  rights  for  Japan,  which  was  the  day  before 
he  was  to  sign  a  deal  for  the  Japanese  home  video-game  rights, 
Gilman  Louie  called  Jim  Mackonochie  in  England  to  report  on 
the  deal.  Mackonochie  "had  a  fit,"  Louie  remembers.  The  Mirror- 
soft  chief  told  Louie  it  was  impossible  for  Spectrum  to  go  ahead; 
he  had  already  sold  those  rights  to  Atari  Games.  Hide  Nakajima 
was  getting  "Tetris"  rights  to  North  America  and  Japan  in  ex- 
change for  worldwide  rights  to  an  Atari  game  called  "Blastroids." 
Gilman  Louie  hit  the  roof.  "What  are  you  talking  about?"  he 
shouted.  "Those  are  my  rights^ 

Louie  argued  that  not  only  were  all  the  Japanese  and  American 
"Tetris"  rights  his,  not  Mirrorsoft's,  but  Mackonochie  was  making 
a  terrible  deal;  "Blastroids"  was  an  atrocious  game.  Besides,  he 
said,  he  had  made  a  terrific  deal  with  Henk  Rogers. 

Mackonochie  explained  that  there  was  nothing  Louie  could  do. 
The  Maxwells  had  financial  control  of  both  Mirrorsoft  and  Spec- 
trum Holobyte,  but  both  men  knew  that  the  family  had  far  greater 
interest  in  Mirrorsoft,  which  was  personally  overseen  by  Robert 
Maxwell's  son  Kevin.  Kevin  Maxwell  supported  Mackonochie's 
deal,  so  Louie  was  out  of  luck. 

Louie  insisted  that  he  at  least  had  to  honor  the  deal  he  had 
already  signed;  Henk  Rogers  had  to  be  able  to  have  the  sublicense 
for  the  floppy-disk  game  in  Japan.  Since  it  was  the  least  valuable 
of  the  rights  under  discussion,  Mackonochie  agreed. 

Atari  Games'  agreement  with  Mirrorsoft  was  not  actually  signed 
until  May  30,  1988,  only  two  weeks  after  Stein's  initial  deal  with 
the  Russians  was  signed.  Hide  Nakajima  planned  to  exploit  the 
"Tetris"  rights  in  as  many  ways  as  possible.  In  the  United  States  he 
planned  to  release  both  a  coin-op  "Tetris"  and  an  NES  version 
under  the  Tengen  label,  and  he  planned  to  sublicense  these  rights 
in  Japan. 

Gilman  Louie  called  Henk  Rogers  to  apologize;  he  explained 
that  unbeknownst  to  him,  Atari  Games  had  been  awarded  the 
"Tetris"  video-game  rights  for  Japan  and  the  United  States.  Rog- 


312  GAME    OVER 


ers's  floppy-disk  rights  were  secure,  but  if  he  wanted  the  other 
Japanese  rights,  he  would  have  to  negotiate  with  Atari  Games. 

Rogers  tried,  contacting  Randy  Broweleit  and  Hide  Nakajima. 
Broweleit  said  the  coin-op  rights  for  Japan  were  gone;  they  had 
been  sold  to  Sega.  Dejected,  Rogers  said  he  would  at  least  like  to 
secure  the  rights  for  "Tetris"  on  Japanese  home  video-game  sys- 
tems, including  Nintendo's  Famicom.  What,  he  asked,  would  he 
have  to  do  for  these? 

Broweleit  was  noncommittal,  so  Rogers  went  directly  to 
Nakajima.  The  two  men  had  dinner  on  August  16,  1988.  It  took 
until  October  to  hammer  out  a  deal.  As  far  as  he  knew,  Rogers 
had  finally  sewn  up  the  rights  to  sell  "Tetris"  in  Japan,  not  only  for 
computers  but  also  for  the  far  bigger  market,  Nintendo's  Famicom 
and  other  home  video-game  systems. 

Now  Rogers  headed  to  London  for  a  meeting  at  Mirrorsoft.  He 
brought  videotape  copies  of  versions  of  "Tetris"  for  the  Russians 
to  approve.  After  the  meeting,  Rogers  returned  to  Japan,  where 
he  received  a  faxed  go-ahead  to  produce  his  game  from  a  Mirror- 
soft  attorney. 

Rogers's  "Tetris"  for  PCs  was  launched  in  Japan  in  November 
1988.  A  month  later  he  shipped  his  version  for  the  Famicom. 
Tetrismania  quickly  swept  Japan,  just  as  it  had  the  United  States. 
Two  million  copies  of  the  game  were  sold  there. 

By  now  Minoru  Arakawa  had  decided  that  he  wanted  "Tetris" 
for  Game  Boy.  His  lawyers  had  figured  out  that  Mirrorsoft  was 
probably  tap-dancing  around  the  fact  that  it  didn't  have  the  rights; 
indeed,  it  was  possible  that  no  one  owned  the  hand-held  rights. 
That  is  when  Arakawa  decided  it  might  be  beneficial  to  try  other 
avenues  to  get  the  game.  In  a  meeting  with  Henk  Rogers, 
Arakawa  made  an  offer.  If  Rogers  could  get  the  hand-held  rights, 
NOA  would  take  out  a  sublicense  from  him.  Rogers  was  let  in  on 
the  still-secret  reason  that  Arakawa  wanted  "Tetris":  he  was 
shown  a  prototype  of  Game  Boy. 

For  all  Rogers's  impressive  insight  into  game  play,  he  was  sharp 
about  the  business  side  of  video  games  as  well.  When  Arakawa 
challenged  him  to  get  the  hand-held  rights  to  "Tetris,"  the  younger 
man  viewed  it  for  what  it  was:  a  potential  fortune.  "If  you've  met 


FROM    RUSSIA    WITH    LOVE  313 


Rogers,  you  know  that  he  is  capable  of  finding  his  way  in  the 
middle  of  any  storm,"  Howard  Lincoln  says.  "Telling  him  that  we 
were  ready  to  license  from  him  was  like  showing  red  meat  to  a 
hungry  lion." 

Henk  Rogers  faxed  Robert  Stein  in  London  on  November  15, 
1988.  He  wanted  to  bid  for  the  worldwide  hand-held  rights  to 
"Tetris."  Stein  responded  that  he  was  trying  to  get  the  rights  from 
Elorg,  but  the  agency  had  not  made  a  decision  about  them.  He 
was  close  to  pinning  them  down,  however,  and  would  get  back  to 
him. 

Stein  immediately  wrote  Jim  Mackonochie.  "We  must  go  for 
those  rights  immediately,"  he  said.  But  Stein  had  new  worries.  In 
late  1988  he  received  a  telex  that  informed  him  that  Sasha  Alex- 
inko  had  been  replaced  at  Elorg.  The  reasons  for  his  departure 
were  unclear — he  ended  up  leaving  Elorg  to  found  his  own  trading 
company,  and  there  was  speculation  that  he  used  his  government 
work  to  set  up  the  company— but  there  was  nothing  ambiguous 
about  the  character  of  his  replacement,  the  vice-director  of  Elorg, 
Evgeni  Nikolaevich  Belikov.  Belikov,  large-framed,  slightly  bald- 
ing, and  red-cheeked,  was  described  by  some  who  knew  him  as 
vicious,  cutthroat,  and  bullheaded,  and  by  others  as  savvy,  amia- 
ble, and  razor-sharp.  All,  however,  agreed  that  he  was  a  worthy 
adversary  in  any  negotiation. 

In  late  1988  Belikov  became  the  man  to  charm,  outmaneuver, 
or  otherwise  win  over  in  all  future  "Tetris"  deals.  It  was  easier  said 
than  done.  As  Alexey  Pajitnov  discovered,  "He  is  an  excellent 
actor."  Stein  found  him  "instantly  dislikable;  a  creep." 

Rogers  continued  to  try  to  push  Stein  to  get  him  the  hand-held 
"Tetris"  rights.  Many  calls,  letters,  and  faxes  later,  however,  he 
came  to  the  conclusion  that  Stein  was  useless.  His  only  chance  to 
get  the  rights  was  to  head  directly  to  Moscow,  which  he  did,  in 
February.  But  he  wasn't  the  only  one  to  do  so. 

Kevin  Maxwell  helped  run  his  father's  empire,  then  thought  to 
be  the  tenth-largest  media  concern  in  the  world.  In  addition  to 
newspapers  with  circulations  that  totaled  in  the  tens  of  millions, 


GAME    OVER 


he  looked  over  such  companies  as  Marquis,  Thomas  Cook  Travel, 
Berlitz  language  schools,  and  MTV  Europe.  He  also  oversaw 
Maxwell's  electronic-media  companies — that  is,  on-line  networks 
and  the  computer  software  company  Mirrorsoft.  This  made  him 
Jim  Mackonochie's  boss. 

Kevin,  a  graduate  of  Balliol  College  at  Oxford  and  a  serious, 
morose  workaholic,  had  spent  his  entire  life  working  in  the  family 
companies.  His  brother  Ian  Maxwell  had  once  lost  his  job  with  the 
Maxwell  organization  because  he  chose  to  meet  a  girlfriend  in 
Paris  rather  than  show  up  at  the  airport  for  a  meeting  with  his 
father.  That  was  a  choice  Kevin  Maxwell  would  never  have 
thought  to  make. 

Like  his  father,  Kevin  tended  to  be  inaccessible  when  his  top 
executives  needed  his  input,  though  he  would  meddle  on  a  whim. 
And,  like  his  father,  he  was  short-fused  and  inclined  to  tantrums, 
tending  to  jump  when  it  might  have  been  prudent  to  think. 

From  the  beginning,  Kevin  Maxwell  had  kept  tabs  on  the 
"Tetris"  negotiations  in  consultation  with  Jim  Mackonochie. 
When  negotiations  got  so  bogged  down  that  Mackonochie  decided 
to  go  to  Moscow  himself,  Maxwell  stepped  in.  He  was  going  to 
Moscow  anyway,  he  said,  and  he  could  easily  straighten  things  out 
with  the  Soviets. 

Robert  Stein,  frustrated  because  he  couldn't  nail  down  the 
rights  to  "Tetris"  for  hand-held  or  coin-operated  games,  worried 
because  there  were  already  coin-operated  versions  being  sold  in 
the  United  States  and  Japan,  and  under  pressure  from  Henk  Rog- 
ers, realized  that  he  also  had  to  head  to  Moscow  again.  Unbe- 
knownst to  one  another,  the  three  men  flew  to  the  U.S.S.R.  at 
exactly  the  same  time. 


\x  14 

THE  "TETRI5"  \> 

5DNB  ^ 


Alexey  Pajitnov  could  tell  instantly  that  Henk  Rogers  was  a  man 
after  his  own  heart.  Of  all  of  those  he  had  dealt  with,  from  Stein  to 
the  bureaucrats  at  Elorg,  Rogers  was  the  only  one  who  seemed  to 
truly  love  "Tetris."  He  was  a  hacker,  he  spoke  the  language  of 
games,  and  he  understood  the  pure  beauty  of  the  "Tetris"  design. 

Elorg  and  the  Academy  both  hoped  to  establish  a  relationship 
with  someone  from  the  West  other  than  Robert  Stein.  Of  course 
they  also  wished  to  make  as  much  money  as  they  could,  so  when 
Rogers  appeared  in  Moscow,  after  tracking  down  Pajitnov  through 
chess  players  and  computer  hackers,  the  Russians  had  a  second 
bidder  and  leverage  against  Stein. 

For  his  part,  Rogers  was  surprised  by  how  naive  the  Soviets  were 
about  licensing  deals.  "Whoever  they  had  been  doing  business  with 
obviously  didn't  explain  what  the  world  looked  like,"  he  says.  The 
jargon  was  unfamiliar  to  them,  and  he  could  have  snowed  them.  At 
their  first  meeting  at  Elorg,  he  accepted  the  coffee  the  Soviets 


316  GAME    OVER 


offered.  Sounds  echoed  in  the  unadorned,  chilly  room.  Rogers  did 
most  of  the  talking.  Before  he  knew  it,  he  was  walking  the  Soviets 
through  the  video-game  business  as  if  he  was  teaching  a  course. 

When  the  meeting  ended,  Pajitnov  and  Rogers  struck  up  a  con- 
versation and  ended  up  having  dinner  together  at  a  restaurant. 
Then  Pajitnov  invited  Rogers  back  to  his  apartment  to  show  off 
other  software  he  had  been  working  on.  It  was  an  evening  of  frank 
discussion  and  good  cheer.  Pajitnov,  suspicious  of  all  the  Western- 
ers trying  to  get  pieces  of  "Tetris,"  found  that  "the  most  important 
thing  about  Henk  was  that  he  didn't  ask  for  protection  in  the  deal. 
He  offered  me  nothing  and  asked  for  nothing." 

The  following  day,  at  Elorg,  Rogers  presented  an  offer  for  the 
hand-held  rights  to  "Tetris."  The  deal  was  ironed  out  within  a  few 
days,  and  signatures  confirmed  it  on  February  21. 

Delighted,  Rogers  promised  an  advance  check  right  away.  He 
also  assured  the  Russians  that  the  royalties  would  be  significant; 
hand-held  "Tetris"  would  bring  them  a  substantial  amount  of 
money.  In  a  celebratory  mood,  he  mentioned  that  he  had  brought 
with  him  a  copy  of  the  home  video-game  version  of  "Tetris"  he  was 
selling  in  Japan.  The  Russians  looked  at  one  another  dumb- 
founded as  he  produced  from  his  briefcase  the  brightly  packaged 
Nintendo  game  cartridge  and  proudly  passed  it  around  the  room. 

Sitting  on  the  edge  of  his  seat,  Nikolai  Belikov  spoke  first. 
"What  is  this  game?"  he  asked. 

Rogers  explained  that  it  was  his  "Tetris"  game  for  the  Famicom, 
the  video-game  system  made  by  Nintendo  in  Japan. 

The  Russians  had  never  heard  of  Nintendo. 

Rogers  reminded  the  group  that  they  had  seen  and  approved  a 
videotape  of  the  game. 

Belikov  shook  his  head.  "We  have  approved  nothing.  We  never 
licensed  anybody  to  make  this!"  he  snapped. 

The  mirth  evaporated,  and  Rogers  realized  he  was  in  trouble. 
Stammering,  he  told  the  Soviets,  "But  I  bought  those  rights  from 
Tengen.  I  paid  lots  of  money  for  them!" 

Belikov's  fists  rested  on  the  table.  "We  don't  know  this  company 
Tengen,"  he  said.  "We  do  not  understand." 

It  dawned  on  Rogers  that  the  license  he  had  bought  from  Atari 


THE    "TETRIS"    SONG  317 


Games/Tengen  to  market  "Tetris"  for  the  Famicom  was,  as  he  said 
later,  "a  sham." 

Rogers  now  recounted  to  the  Soviets  his  negotiations  for  the 
home  video-game  rights  that  began  with  Spectrum  Holobyte  and 
ended  when  he  was  told  that  Atari  held  the  rights.  He  said  he  had 
negotiated  with  Atari  over  the  course  of  more  than  six  months,  and 
reported  that  Atari  had  announced  that  it  was  releasing  a  home 
video-game  version  of  "Tetris"  for  the  Nintendo  system  in  Amer- 
ica. But  there  was  more:  Atari  had  also  sold  a  company  called  Sega 
the  rights  to  create  an  arcade  version  of  "Tetris"  in  Japan. 

The  Soviets  were  speechless.  "An  arcade  game  has  been  sold?" 
Belikov  asked.  Rogers  nodded. 

Belikov  finally  spoke  in  Russian,  uttering  instructions  to  an  assis- 
tant, who  disappeared  for  a  few  minutes  while  Belikov  told  Rogers, 
"We  have  not  licensed  anyone  to  make  Tetris'  on  home  video- 
game systems  or  coin-operated  games.  I  will  show  you." 

The  assistant  returned  with  a  tall  stack  of  documents,  which  he 
set  on  the  table.  Belikov  flipped  through  the  papers  until  he  came 
to  a  copy  of  Elorg's  contract  with  Robert  Stein.  He  pored  over  the 
pages  for  a  few  minutes,  and  when  he  found  what  he  had  been 
looking  for,  set  the  document  on  the  table  and  pointed  with  his 
forefinger  to  the  paragraph  explicitly  stating  that  the  rights  granted 
to  Robert  Stein's  Andromeda  Software  were  for  the  IBM  PC  and 
other  computer  systems. 

Rogers  was  as  shocked  as  the  Soviets  were,  but  his  immediate 
concern  was  to  hold  on  to  the  video-game  rights  that  he  had  just 
secured.  He  said  he  must  have  been  lied  to,  and  that  he  wanted  to 
make  things  right  with  the  Russians;  pending  negotiations,  he 
would  pay  them  directly  for  all  the  games  he  had  sold  so  far. 

Belikov  indicated  that  this  offer  was  acceptable,  but  that  they 
would  adjourn  for  the  day.  Rogers  was  to  return  in  the  morning, 
and  an  arrangement  would  be  negotiated  then. 

When  Rogers  returned  the  next  day,  he  came  with  exact  calcula- 
tions of  the  number  of  Famicom  cartridges  he  had  sold  and  offered 
to  pay  what  amounted  to  a  second  royalty  on  the  130,000  car- 
tridges. He  immediately  wrote  a  check  for  $40,712,  representing  a 
portion  of  that. 


31B  GAME    OVER 


Meetings  continued  for  the  next  few  days,  during  which  Rogers 
examined  the  Soviets'  documents  on  the  deal  with  Andromeda.  He 
was  convinced  that  the  Russians  had  never — intentionally,  at  least 
— sold  the  video-game  rights.  The  upshot  of  the  meetings  was  an 
offer  from  Belikov:  Rogers  had  three  weeks  to  determine  whether 
he  wanted  to  make  a  proposal  directly  to  them  for  all  the  home 
video-game  rights  to  "Tetris." 

Rogers  warned,  "There  will  be  trouble."  The  companies  that 
were  selling  "Tetris"  rights  with  abandon — Mirrorsoft  and  Atari 
Games — were  heavyweights.  He  said  he  had  a  plan:  he  would  re- 
turn with  a  partner  who  not  only  had  an  enormous  amount  of 
money  but  clout  enough  to  fight  them.  This  partner,  the  company 
that  had  control  of  the  largest  market  for  video  games  in  the  world, 
was  Nintendo. 

Robert  Stein  had  raced  to  the  Elorg  office  that  morning  in  a  taxi 
from  the  Hotel  Kosmos.  Exhausted  from  travel  and  from  the  pros- 
pect of  renewed  negotiations,  he  waited  obediently  in  a  small 
room,  where  a  rickety  table  held  only  a  pitcher  of  water  and  a 
glass. 

Finally  Belikov,  Elorg's  new  negotiator,  stormed  into  the  room. 
He  refused  to  engage  in  small  talk,  but  simply  threw  a  document  in 
front  of  Stein  and  told  him  to  sign  it. 

Stein  asked  what  it  was.  "We  already  have  a  contract,"  he 
pointed  out. 

Belikov  explained  that  this  was  an  amendment  to  the  contract. 
Confused,  Stein  said  he  didn't  understand;  he  was  in  Moscow  to 
negotiate  for  the  hand-held  and  coin-op  rights  to  "Tetris,"  not  to 
sign  a  new  contract. 

Belikov  held  firm;  he  would  continue  negotiations  only  if  Stein 
signed  the  paper. 

Stein  examined  it.  It  was  an  addendum  that  noted  that  it  and  the 
original  contract  were  to  be  read  as  one.  Concentrating  on  the 
payment  schedules  and  fluctuating  percentages,  Stein's  eye 
skipped  over  one  line  that  defined  computers,  as  referred  to  in  the 
original  contract,  as  "PC  computers  which  consist  of  a  processor, 
monitor,  disk  drive(s),  keyboard  and  operation  system."  He  was 
told  that  the  one-page  document — alteration  no.  1 — was  to  amend 


THE    "TETRIS"    SONG 


the  contract  signed  the  previous  May,  which  was  why  it  had  been 
backdated  to  May  10,  1988;  it  would  be  effective  as  of  that  date. 

Stein  returned  to  his  hotel  to  study  the  amendment.  It  seemed  to 
him  that  the  most  important  item  was  about  the  assessment  of 
penalties  for  late  payments  of  royalties.  He  knew  the  Russians 
were  concerned  that  money  had  not  arrived  frequently  enough. 
The  amendment  was,  in  these  circumstances,  understandable. 
Though  he  read  and  reread  the  paper,  he  was  unconcerned  about 
the  innocuous  line  clarifying  the  definition  of  computers.  Later  he 
deduced  that  everything  in  the  document  other  than  this  line  was 
"a  smoke  screen." 

"Henk  Rogers  orchestrated  it  for  Nintendo,"  Stein  believes. 
"He  advised  the  Russians."  The  charade  was  all  designed  to  take 
away  most  of  his  rights  and  offer  them  to  Nintendo,  which 
swooped  in  and  snatched  them. 

Stein  returned  to  the  Elorg  office  the  following  day.  He  had  no 
problem  with  the  amendment,  he  announced,  but  said  that  he 
would  not  sign  it  unless  the  deals  for  the  other  rights  were  made.  It 
was  the  only  leverage  he  had.  He  had  drawn  up  by  hand  an  offer 
for  the  coin-operated  and  hand-held  "Tetris"  rights,  and  he  pre- 
sented it  to  Belikov.  In  the  document  he  included  minimum  guar- 
anteed sales,  advances,  and  percentages  of  royalties,  but  it  was, 
Stein  says,  "a  mockery.  They  knew  what  they  were  going  to  do 
before  I  arrived."  He  was  told  he  could  not  secure  hand-held  rights 
at  this  moment,  but  he  could  have  the  coin-operated  rights.  He 
would  have  to  pay  dearly  for  them;  within  six  weeks  he  had  to 
come  up  with  an  advance  of  $150,000  or  the  deal  would  be  off.  He 
signed  the  contract  and  the  amendment  two  days  later,  on  Febru- 
ary 24,  1989. 

Oozing  charm  and  self-importance,  Kevin  Maxwell  was  also  at 
Elorg  on  February  22,  meeting  with  the  Soviets  in  a  small  room. 
He,  Stein,  and  Rogers  might  well  have  run  into  one  another  in  an 
Elorg  hallway  that  day. 

After  small  talk,  Maxwell  asked  Belikov  why  the  deal  for  coin- 
operated  and  hand-held  "Tetris"  rights  was  taking  so  long  to  settle. 
But  Belikov  had  another  agenda.  Reaching  into  a  sack,  he  with- 
drew, as  a  magician  might  reveal  a  rabbit  from  a  hat,  a  video-game 


320  GAME    OVER 

cartridge  and  placed  it  on  the  table.  "What  is  this,  Mr.  Maxwell?" 
he  asked. 

Maxwell  reached  for  the  cartridge — Henk  Rogers's  Japanese 
video-game  version  of  "Tetris" — and  examined  it.  He  had  no  idea 
that  his  own  company  had  licensed  the  game  via  a  sublicense  to 
Atari  Games,  so  he  shrugged.  Then  the  Russian  asked  him  to  look 
at  the  copyright  notice  on  the  cartridge.  It  read  "Elorg,  Mirrorsoft, 
and  Tengen." 

Maxwell  said  that  Mirrorsoft  had  not  licensed  home  video-game 
rights  to  "Tetris,"  so  the  cartridge  must  be  a  pirated  game. 

It  was  a  crucial  error.  As  a  result,  the  Russians  decided  once  and 
for  all  that  they  could  maintain  that  Mirrorsoft  had  no  right  to  the 
home  video-game  version  of  "Tetris." 

Unaware  of  the  gravity  of  the  situation,  Maxwell  returned  to  his 
own  agenda,  the  coin-op  and  hand-held  "Tetris"  rights.  Belikov 
excused  himself  and  disappeared  for  a  while.  When  he  returned, 
he  told  Maxwell  that  he  would  sign  a  "protocol  agreement"  prom- 
ising Mirrorsoft  the  right  of  first  refusal  on  ancillary  rights  to 
"Tetris" — including  coin-op,  hand-held,  and  merchandising  rights 
— contingent  on  Maxwell's  assurance  that  he  would  make  an  offer 
for  the  video-game  rights  within  one  week.  "We  must  clear  up  the 
matter  of  this  pirated  cartridge,"  Belikov  said.  "Therefore  we  must 
have  a  deal  within  a  week." 

A  protocol  agreement  was  signed  guaranteeing  Mirrorsoft  the 
right  to  bid  on  all  remaining  "Tetris"  rights,  even  though  the  coin- 
op  and  hand-held  rights  were  simultaneously  being  granted  to 
Henk  Rogers  and  Robert  Stein.  In  exchange  Elorg  would  get  the 
rights  to  publish  in  the  Soviet  Union  Maxwell  Communications 
properties,  such  as  Collier's  Encyclopedia  and  other  reference 
books.  The  Soviets  may  not  have  known  much  about  the  video- 
game business,  but  they  demonstrated  their  uniquely  effective 
method  of  negotiating.  Their  juggling  of  Rogers,  Stein,  and  Max- 
well had  put  them  back  in  a  position  of  complete  control. 

The  upshot  of  Belikov's  busy  week  was  a  deal  for  the  hand-held 
rights  for  "Tetris"  with  Henk  Rogers,  plus  a  chance  for  a  new  deal 
within  three  weeks  on  the  home  video-game  rights  with  Nintendo. 
He  had  a  signed  deal  for  coin-operated  "Tetris"  with  Stein  and  the 
promise  of  a  check  for  $150,000.  Kevin  Maxwell  had  given  Elorg 


THE    "TETRIS"    SONG  321 

more  than  the  rights  to  publish  Maxwell  Communications  refer- 
ence books:  he  had  characterized  the  "Tetris"  game  his  company 
had  licensed  as  a  pirated  game  instead  of  insisting  that  Mirrorsoft 
had  licensed  the  games  from  rights  it  held— thus  supporting 
Elorg's  position  that  it  had  never  sold  the  video-game  rights  in  the 
first  place.  If  Mirrorsoft  wanted  those  rights  now,  it  would  have  to 
outbid  Nintendo.  It  was  not  a  bad  week's  work. 

A  letter  was  drafted  to  Henk  Rogers  on  February  24  confirming 
that  Elorg  had  not  granted  anyone  the  license  "to  make,  have 
made,  duplicate,  market,  distribute,  sell  or  in  any  way  use"  "Tetris" 
for  use  on  "video  games  or  TV  games  or  game  consoles,  which  are 
defined  as  computers  which  have  no  keyboard." 

Looking  back  on  the  week  in  Moscow  after  the  fact,  Robert 
Stein  said  that  his  only  satisfaction  was  knowing  he  emerged  from 
the  meetings  with  the  coin-op  rights  while  Kevin  Maxwell  emerged 
with  nothing  but  worthless  paper.  Otherwise,  he  said,  the  week  was 
a  disaster,  the  product  of  lying,  cheating,  and  back-stabbing.  It  was 
impossible,  he  said,  for  the  Russians  not  to  know  about  the  BPS 
Nintendo  game  before  Rogers  showed  it  to  them;  he  claimed  he 
had  provided  Elorg  with  a  copy  of  Rogers's  videotape  back  in 
December  1988.  He  concluded  that  he  had  been  set  up,  and  that 
the  amendment,  the  lies,  and  Kevin  Maxwell's  admission  about  the 
Japanese  "Tetris"  cartridge  all  cleared  a  path  for  the  Russians  to 
double-deal  him.  "I  was  set  up  because  of  stupidity,"  he  says,  "but 
also  because  I  was  under  tremendous  pressure  to  walk  away  with  a 
contract  for  coin-operated  games  because  Atari  Games  and  Sega 
were  already  selling  them  all  over  the  world  without  a  contract." 
He  insists  that  Jim  Mackonochie  and  Mirrorsoft  had  put  him  in  the 
position  of  "signing  my  life  away"  by  knowingly  selling  rights  they 
didn't  own,  and  that  he  was  forced  to  cover  Mackonochie's  tracks. 

Bitterly,  Stein  says,  "I  will  never  know  if  Jim  Mackonochie  is  a 
good  friend  or  if  he  knew  he  was  screwing  me.  Maybe  he  was  just  a 
corporate  animal.  The  fact  is,  he  went  right  behind  my  back.  I  was 
fighting  for  my  bloody  life  and  he  screwed  me,  acting  as  if  the  coin- 
op  license  was  already  theirs,  so  that  if  I  didn't  get  it  for  them  I 
would  be  sued  out  of  existence.  Then"— he  shakes  his  head  wearily 
—"he  concealed  from  me  the  fact  that  Kevin  Maxwell  was  in  the 
next  room  burying  me,  burying  us  all."  Now  Stein  finally  under- 


322  GAME    OVER 

stood  why  Belikov  kept  disappearing  in  the  middle  of  their  meet- 
ings. 

Henk  Rogers  tied  matters  up  in  Moscow  and  quickly  returned 
home,  where  he  called  Minoru  Arakawa.  His  news  was  better  than 
anyone  could  have  hoped  for.  First,  he  had  the  hand-held  rights  to 
"Tetris,"  and  Arakawa's  deal  with  him  gave  Nintendo  the  rights  to 
"Tetris"  for  Game  Boy.  (He  retained  the  rights  to  sell  "Tetris"  on 
other  electronic  hand-held  machines,  such  as  the  Sharp  Wizard.) 
Reportedly  he  would  receive  $1  for  every  "Tetris"  sold  with  a 
Game  Boy  system,  and  more  for  games  sold  separately.  This  deal 
was  worth  between  $5  million  and  $10  million  to  Rogers. 

Best  for  Nintendo,  however,  was  the  news  that  the  Russians 
claimed  never  to  have  sold  the  "Tetris"  home  video-game  rights  to 
anyone.  The  rights  that  Robert  Stein  had  sold  to  Mirrorsoft  and 
that  Mirrorsoft  had  sold  to  Atari  Games  and  BPS  were,  according 
to  the  Russians,  bogus. 

Rogers  was  covered  whatever  happened — he  had  Japanese 
"Tetris"  rights  from  Atari  Games  or  Nintendo,  whoever  ended  up 
with  them — but  the  beauty  of  the  new  development  was  that  Nin- 
tendo could  almost  certainly  have  "Tetris"  for  the  rest  of  the 
world's  home  game  machines.  Potentially  this  represented  tens  of 
millions  of  dollars  and,  for  Arakawa  and  Lincoln,  something  even 
more  delicious:  the  pleasure  of  depriving  their  old  friend  Hide 
Nakajima — the  friend  who,  they  felt,  had  betrayed  them — of  those 
potential  millions.  Revenge,  Lincoln  admits,  was  a  prime  mo- 
tivator. There  were  no  second  thoughts:  he  and  Arakawa  would  do 
whatever  it  took  to  get  the  home  video-game  rights. 

Lincoln  and  Arakawa  decided  to  send  Rogers  back  to  Moscow, 
this  time  with  a  lawyer.  Lincoln  called  around  and  learned  about 
John  Huhs,  a  New  York  attorney  who  had  worked  in  the  Soviet 
Union.  Huhs,  who  had  been  part  of  the  Nixon  White  House,  spoke 
fluent  Russian,  and,  although  he  knew  nothing  about  video  games, 
was  a  talented  international  lawyer.  Lincoln  gave  him  a  crash 
course  on  the  phone  before  Huhs  set  out  to  meet  Rogers,  who  was 
already  en  route  back  to  Moscow. 

After  an  initial  meeting  at  Elorg,  Rogers  and  Huhs  made  an 


THE    "TETRIS"    SONG  323 

offer  for  the  home  video-game  rights  to  "Tetris"  on  behalf  of  Nin- 
tendo. Included  in  the  offer  was  an  astronomical  guarantee.  The 
tough  Soviet  negotiators  betrayed  amazement  over  the  figure. 
Arakawa  wanted  to  be  sure  of  clinching  the  deal;  no  one — not 
Atari  Games,  not  even  Robert  Maxwell— was  likely  to  touch  the 
number  he  had  authorized  Huhs  and  Rogers  to  offer. 

The  same  day,  March  15,  Elorg  sent  a  telex  to  Mirrorsoft,  noting 
that  Mirrorsoft  had  promised  to  give  Elorg  its  proposal  for  home 
video-game  rights  to  "Tetris"  within  a  week  of  the  meeting  with 
Kevin  Maxwell  in  Moscow.  As  it  was  well  past  that  week  and  Elorg 
had  a  competing  proposal  valid  only  until  March  16,  Mirrorsoft 
had  one  day  to  make  an  offer. 

By  design  there  was  no  chance  for  a  Mirrorsoft  bid.  Elorg  had 
elicited  it  in  such  a  way  as  to  address  Maxwell's  right  of  first  refusal 
because  it  had  been  guaranteed  in  the  protocol  agreement.  As 
planned,  there  was  no  response  within  that  day,  and  so  the  path 
was  cleared  for  Nintendo.  Rogers  and  Huhs  placed  a  call  to  Red- 
mond. Huhs  was  convinced  the  deal  could  be  signed  and  sealed  if 
Lincoln  and  Arakawa  could  come  to  Moscow  by  Monday.  He  said 
they  should  head  first  to  Washington,  where  their  visas  would  be 
waiting  at  the  Soviet  consulate. 

Arakawa  and  Lincoln  told  only  Peter  Main  and  Phil  Rogers 
where  they  were  going,  for  they  were  concerned  that  Atari  Games 
would  discover  their  destination.  Everyone  else  at  Nintendo 
thought  they  were  going  to  Japan.  To  reach  the  consulate  before  it 
closed  for  the  weekend,  they  had  to  fly  to  Los  Angeles  from  Seattle 
and  then  take  a  red-eye  to  Washington.  Arriving  there  at  dawn, 
they  checked  into  a  hotel,  showered,  dressed,  and  hopped  a  cab  for 
the  office  of  the  Russian  consul  general.  There,  in  the  visa  office, 
the  agent  in  charge  had  never  heard  of  an  Arakawa,  or  a  Lincoln, 
or  Nintendo.  There  had  been  no  communication  from  Moscow, 
and  without  it  a  visa  could  not  be  given.  All  the  Nintendo  chiefs 
could  do  was  wait.  At  4:00  p.m.  a  telex  finally  arrived  authorizing 
the  issuance  of  visas. 

There  was  just  enough  time  to  dash  to  the  airport  and  catch  the 
next  flight  to  London,  another  red-eye.  They  passed  out  on  the 


GAME    OVER 


plane  and  awoke  as  it  touched  down  at  Heathrow,  where  it  was 
now  late  afternoon.  There  was  an  evening  to  kill  in  London  before 
the  next  flight  to  Moscow. 

The  two  retired  after  dinner.  Lincoln  said  he  would  ring 
Arakawa's  room  at  7:00  a.m.  so  they  could  catch  the  nine-thirty 
flight.  But  he  slept  through  his  wake-up  call,  stirring  at  about  eight. 
When  he  realized  the  time,  he  frantically  called  Arakawa.  The  two 
threw  their  clothes  in  their  bags  and  raced  to  the  airport,  where 
they  sprinted  through  the  terminal  and  tried  to  blast  through  the 
security  checkpoint. 

A  bevy  of  security  guards  approached  them.  It  was  the  first  time 
they  had  paused  to  look  at  each  other.  They  were  unshaven,  their 
hair  was  tousled,  and  Lincoln  was  wearing  his  pajama  top  under 
his  suit  jacket. 

Fast  talking  got  them  past  the  security  checkpoint  and  they  got 
to  the  plane  just  as  the  door  was  about  to  be  closed.  The  two 
looked  as  if  they  were  on  the  lam  from  a  madhouse. 

They  slept  on  the  flight  to  Moscow  that  Sunday,  March  19, 1989. 
Rogers  and  Huhs  met  them  at  the  airport.  Rogers,  who  had  rented 
a  black  Mercedes  190,  maneuvered  the  car  through  Moscow  while 
Arakawa  and  Lincoln  stared  at  the  passing  scenery,  the  heavy- 
coated  pedestrians,  and  the  surprisingly  European  architecture.  It 
seemed  like  a  film  of  New  York  in  the  1940s. 

Rogers  told  Arakawa  and  Lincoln  that  he  had  managed  to  find  a 
Japanese  exporter  who  had  a  fax  machine  they  could  use.  He  also 
had  a  portable  computer  and  printer  set  up  in  his  hotel  room.  He 
said  he  and  Huhs  would  meet  them  the  next  morning  at  Elorg — he 
supplied  the  address  on  a  piece  of  paper — and  then  dropped  off 
his  exhausted  passengers. 

At  the  front  desk,  Arakawa  was  informed  that  rooms  were  un- 
available but  that  he  and  Lincoln  needn't  worry;  the  hotel  would 
put  them  in  an  apartment  in  an  adjacent  building.  It  had  a  discon- 
nected stove,  a  refrigerator  missing  a  door,  a  ragged  sofa,  and, 
down  a  musty  hallway,  a  small  bedroom.  They  looked  at  the  single 
bed  and,  without  uttering  a  word,  pulled  out  their  wallets,  slid  out 
dollar  bills,  and  played  liar's  poker.  Arakawa  lost  and  got  the 
couch. 

Despite  their  fatigue,  the  two  men  left  the  apartment  in  order  to 


THE    "TETRIS"    SONG  325 

stock  up  on  supplies  and  soon  found  what  they  were  looking  for:  a 
liquor  store  with  the  crucial  provisions.  Their  arms  loaded  with 
Heineken  and  cognac,  they  returned  to  their  room,  where  they 
drank  until  Lincoln  retired  to  the  bedroom  and  Arakawa  passed 
out  on  the  couch. 

In  the  morning,  after  rendezvousing  with  Huhs  and  Rogers,  Lin- 
coln and  Arakawa  were  escorted  into  a  conference  room  with  high 
ceilings  and  shaded  windows  at  Elorg's  office.  There  they  were 
introduced  to  the  game's  designer,  Alexey  Pajitnov,  the  Elorg 
chief,  Nikolai  Belikov,  and  some  of  his  associates.  Pajitnov  at- 
tempted to  size  up  Arakawa  and  Lincoln,  but  they  were  "like 
people  from  another  planet."  Lincoln  was  stoic,  immune  to 
Pajitnov's  joking  and  teasing;  Arakawa  was  introverted  and  inac- 
cessible. But  because  of  their  alliance  with  Henk  Rogers,  Pajitnov 
was  inclined  to  trust  them  and  was  their  ally  throughout  the  first 
meeting. 

Although  he  had  tried  to  talk  fishing  with  Belikov  and  one  of  his 
assistants,  once  the  major  issues  were  on  the  table,  Howard  Lin- 
coln was  neither  chatty  nor  amiable.  Money  was  not  the  most 
important  issue  for  the  Nintendo  team.  They  were  more  concerned 
with  Stein's  and  Mirrorsoft's  claims  to  the  home  video-game  rights. 
Lincoln  needed  assurance  that  the  Russians  had  never  meant  to 
sell  those  rights  to  Andromeda  or  anyone  else.  Satisfied  with  the 
answers,  he  said  emphatically  several  times  that  he  had  to  be  abso- 
lutely certain  that  the  Soviets  would  commit  to  the  deal  and  stick 
with  it  to  the  end,  and  that  the  Russians  had  to  be  prepared  for  a 
variety  of  counterattacks  from  Andromeda,  Mirrorsoft,  and  Atari 
Games.  Arakawa  sat  by  patiently,  his  hands  folded  on  the  table. 

The  Soviets  had  come  prepared  with  copies  of  all  the  letters, 
telexes,  and  contract  proposals,  in  addition  to  the  signed  contracts 
with  Stein  and  Andromeda.  Lincoln  examined  them.  One  docu- 
ment was  worth  all  the  others:  the  amendment  Robert  Stein  had 
signed  that  defined  a  computer.  The  NES  was  without  a  "monitor, 
disk  drive(s),  keyboard  and  operation  system."  It  was  not  a  com- 
puter. 

The  Russians  eagerly  broached  new  business  with  Nintendo. 
Glasnost  had  begun,  and  partnerships  with  the  West  in  the  form  of 
joint-venture  companies  were  being  encouraged  by  the  govern- 


326  GAME    OVER 


ment.  Belikov  said  that  they  wished  to  form  a  partnership  with 
Nintendo,  a  joint  venture  that  would  provide  NOA  with  terrific 
new  video  games  like  "Tetris.,, 

Lincoln  suggested  that  they  complete  one  negotiation  at  a  time. 

Next  the  Soviets  asked  why  they  couldn't  manufacture  the 
"Tetris"  cartridges  themselves. 

"That's  not  what  we  had  in  mind,"  said  Lincoln.  "Nintendo 
manufactures  all  the  cartridges." 

The  Russians  then  said  they  wanted  to  make  Nintendo  systems 
themselves  and  sell  them  in  the  U.S.S.R. 

"We  make  them  in  Japan,  thank  you." 

Tb  impress  the  men  from  Nintendo  with  Russia's  engineering 
prowess,  an  Elorg  representative  brought  out  a  small  box.  "Our 
people  made  this,"  he  said. 

Arakawa  opened  it.  Inside  was  a  Game  &  Watch  that  played 
"Donkey  Kong."  There  was  no  sign  of  Nintendo's  name  or  trade- 
mark on  the  watch.  Arakawa  politely  complimented  the  Soviets  on 
the  product. 

After  the  initial  meeting,  Arakawa  and  Lincoln  took  Huhs,  Rog- 
ers, and  Alexey  Pajitnov  out  for  dinner  at  the  only  Japanese  restau- 
rant in  Moscow.  It  had  no  liquor  license,  so  a  waitress  was 
dispatched  to  a  store  and  returned  with  several  large  bottles  of 
beer. 

When  a  plate  of  sushi  arrived,  Pajitnov's  first,  he  tried  a  small 
bite.  Arakawa  explained  that  sushi  should  be  eaten  a  whole  piece 
at  a  time.  Bravely  Pajitnov  tried  some  toro,  the  fatty  tuna  belly  set 
on  a  tiny  brick  of  rice,  carefully  balancing  it  on  his  chopsticks  and 
maneuvering  it  into  his  mouth.  The  taste  was  surprisingly  pleasant, 
he  found.  He  got  more  proficient  with  the  utensils  as  he  tried 
yellowtail,  eel,  crab,  and  tamago,  a  miniature  omelette  set  on  rice. 
Then  he  attacked  a  gluey  green  ball  on  his  plate  and  popped  it  into 
his  mouth  as  his  companions,  in  a  chorus,  shrieked,  "No!"  They 
were  too  late;  Pajitnov  had  downed  a  mound  of  wasabi,  the  wildly 
hot  horseradish  meant  to  be  used  in  small  amounts  to  spice  the  soy 
sauce  for  dipping.  He  felt  a  stinging  explosion  in  his  nostrils  and 
behind  his  eyeballs,  which  vibrated  as  if  they  were  ready  to  launch 
from  his  head.  He  tried  to  drown  out  the  burning  with  beer,  but  in 
vain. 


THE    "TETRIS"    SONG  327 

Arakawa  couldn't  hold  back  his  laughter.  Rogers  joined  him, 
and  soon  the  others  did  too  while  Pajitnov  wiped  the  tears  that 
streamed  from  his  eyes.  He  had  better  luck  managing  the  courses 
that  followed;  shabu  shabu,  ginger  fish,  and  vinegared  seaweed,  all 
washed  down  with  beer. 

After  dinner,  the  party  shifted  to  Pajitnov's  apartment  to  see  a 
new  game  he  had  created  which  he  planned  to  sell  through  a  joint- 
venture  company  in  Moscow.  Lincoln  was  concerned  that  the 
game,  "Welltris,"  might  be  derivative  of  "Tetris,"  and  that  perhaps 
he  should  sew  up  the  rights  to  it  as  well.  Arakawa  was  more  inter- 
ested in  seeing  a  Russian  apartment;  he  had  come  equipped  with  a 
Game  Boy  for  Alexey's  children. 

When  they  all  entered  the  Gersten  Street  building  and  got  into 
the  elevator,  Arakawa  and  Lincoln  exchanged  glances  as  it  began 
its  creaking,  unstable  ascent.  Below  them,  the  elevator  shaft  could 
be  seen  between  the  floorboards,  and  Lincoln  pressed  himself 
against  a  wall  in  an  effort  to  keep  his  weight  off  the  elevator  floor. 
When  they  reached  their  destination,  the  elevator  doors  opened 
three  or  so  precarious  feet  below  the  landing,  and  everyone  had  to 
climb  up  to  reach  the  floor. 

Inside  the  cheery  apartment,  Pajitnov's  wife,  Nina,  served  icy 
vodka  and  Russian  brandy.  Both  Arakawa  and  Lincoln  had  ques- 
tions to  ask  about  life  in  Moscow,  and  the  Pajitnovs  were  happy  to 
answer  them  while  their  eldest  child,  Peter,  played  his  father's 
game  on  Game  Boy.  Peter  was  told  he  was  the  only  child  in  the 
Soviet  Union  with  a  Nintendo  system. 

The  following  day,  the  Nintendo  representatives  returned  to 
Elorg  ready  to  iron  out  the  deal.  Howard  Lincoln  outlined  his  plan 
to  prove  that  the  video-game  rights  to  "Tetris"  had  never  been 
sold,  then  confirmed  Nintendo's  offer.  The  negotiations  continued 
for  three  days.  Lincoln  was  determined  not  to  leave  Moscow  with- 
out a  signed  contract,  and  with  Henk  Rogers  on  the  word  proces- 
sor, they  knocked  one  out,  paragraph  by  paragraph,  in  Rogers's 
hotel  room.  In  morning  meetings  with  the  Soviets,  the  details  were 
spelled  out,  and  in  the  afternoon  the  changes  were  typed  out  and 
printed. 

In  one  meeting,  Lincoln  said  he  wanted  it  to  be  clear  what  the 
game's  author's  rights  were.  The  Elorg  people  answered  that  since 


GAME    OVER 


Pajitnov  worked  for  the  Computer  Center  and  had  created  the 
game  on  company  time,  the  copyright  was  owned  by  the  Academy 
of  Science,  and  that  as  the  trade  organization,  Elorg  was  autho- 
rized by  the  Academy  to  license  "Tetris."  Pajitnov  nodded  his  con- 
firmation. He  was  resigned  to  a  small  degree  of  glory,  perhaps 
some  opportunities  for  the  future,  but  no  money. 

Lincoln  insisted  on  a  clause  in  the  contract  that  committed  the 
Soviets  to  cooperate  in  any  litigation  that  might  ensue;  they  would 
have  to  come  to  the  United  States  to  testify  if  it  became  necessary. 
Then,  at  the  last  minute,  the  Soviets  began  to  squabble  over  the 
royalty  Nintendo  had  offered,  but  Lincoln  said  the  deal  was  no 
longer  negotiable.  Nintendo  was  going  to  be  responsible  for  the 
legal  expenses,  which  would  probably  be  sizable  because  many 
people  would  be  upset  about  the  agreement  they  were  about  to 
sign.  These  included,  he  noted,  Stein,  Atari  Games,  the  Mirrorsoft 
people,  and  Mirrorsoft's  owner,  Robert  Maxwell.  The  mention  of 
Maxwell  dampened  the  discord,  particularly  since  Belikov  was  all 
too  aware  of  the  latest  telex  from  Mirrorsoft  that  had  arrived  that 
morning:  Jim  Mackonochie,  responding  to  the  last  Soviet  commu- 
nique, had  written  to  insist  that  Mirrorsoft  didn't  have  to  offer 
anything  for  the  video-game  "Tetris"  rights  since  it  already  owned 
them. 

By  way  of  reply,  Elorg  sent  a  telex  informing  Mackonochie  that 
neither  Andromeda,  Mirrorsoft,  nor  Tengen  had  been  authorized 
to  distribute  "Tetris"  on  home  video-game  systems,  and  that  the 
rights  were  no  longer  available  since  they  had  been  granted  to 
Nintendo  of  America.  The  telex  was  sent  on  March  22,  the  same 
day  the  Nintendo  contract  was  finalized.  Arakawa  signed  for  Nin- 
tendo, Pajitnov  signed  as  the  author,  and  Belikov  signed  for  Elorg. 

The  signing  ceremony  was  attended  by  representatives  of  Nin- 
tendo and  Elorg,  as  well  as  two  senior  officials  of  the  Soviet  gov- 
ernment, Edward  A.  Maksakov,  deputy  chairman  of  the  State 
Committee  for  Computer  Systems  and  Informatics,  and  Dr.  Stanis- 
lov  I.  Gusev,  head  of  the  Department  of  Scientific-Technical  Infor- 
mation at  the  Computer  Center  of  the  Academy  of  Sciences.  The 
advance  guarantee  was  kept  confidential,  but  rumors  had  it  at  $3  to 
$5  million.  Lincoln  says  it  was  less,  but  will  not  divulge  the  amount. 


THE    "TETRIS"    SONG  329 

Dennis  Wood,  Atari  Game's  counsel,  says  the  amount  "would  en- 
tice anybody  to  double-license." 

An  attempt  to  derail  the  Nintendo  deal  arrived  on  March  23, 
addressed  to  Belikov.  Kevin  Maxwell  wrote:  "I  give  you  formal 
notice  that  you  are  now  in  grave  breach  twice  over  of  our  agree- 
ments with  you."  He  added  that  the  matter  would  be  raised  during 
the  forthcoming  visit  to  London  of  President  Gorbachev  and 
stated  flatly,  "We  already  hold  the  worldwide  rights  to  Tetris'  on 
the  Nintendo  family  computer.  Indeed,  we  have  been  marketing  it 
accordingly,  both  directly  and  through  Tengen  in  the  United  States 
and  Bullet-Proof  Software  in  Japan  since  January  1989.  .  .  ." 

Maxwell  said  he  was  coming  to  Moscow  and  was  willing,  "in  the 
spirit  of  reconciliation,"  to  meet  Belikov  to  "hear  how  you  intend 
to  remedy  your  double  breach  of  our  agreement."  He  concluded 
by  threatening  that  if  the  Russians  didn't  make  good,  he  would 
carry  the  matter  to  the  highest  legal  and  political  levels. 

It  was  too  late.  That  evening,  Arakawa,  Lincoln,  Rogers,  and 
Huhs  celebrated  at  the  Japanese  restaurant  with  Alexey  Pajitnov. 
Sitting  at  the  Teppan  Yaki  bar,  they  asked  the  Japanese  waitress  if 
she  would  go  to  the  liquor  store  for  beer. 

"Finnish  beer?"  they  heard  her  say. 

Fine,  they  responded,  and  she  scurried  off. 

Arakawa  tried  to  contain  his  elation,  but  his  smile  was  enor- 
mous. "We've  got  it,"  he  said  exultantly  to  Lincoln.  Spirits  were  so 
high  that  the  table  almost  levitated. 

The  waitress  hadn't  returned  with  the  beer  and  it  was  time  for  a 
toast.  Lincoln  saw  the  waitress  and  called  her  over.  "Where  is  the 
beer?"  he  asked  her. 

"Finish  beer,"  she  repeated.  "Finish  beer." 

"Fine,"  Lincoln  said,  "but  .  .  ." 

With  her  delicate  hands,  the  woman  made  an  X.  "Finish  beer!" 
she  said  firmly. 

Roaring  with  laughter,  they  toasted  instead  with  soft  drinks. 
(Later  Henk  Rogers  sent  Howard  Lincoln  a  case  of  Finnish  beer  as 
a  present.) 

They  all  exchanged  warm  hugs  after  dinner  and  said  good  night. 


330  GAME    OVER 

Rogers  was  particularly  happy.  Not  only  did  he  have  the  hand-held 
rights  to  "Tetris,"  sublicensed  to  Nintendo  for  Game  Boy,  but  as  a 
reward  he  had  also  been  given  a  sublicense  to  distribute  "Tetris" 
for  home  video-game  systems  in  Japan,  the  rights  he  thought  he 
had  bought  from  Atari.  This  time,  though,  he  got  the  game  at 
Nintendo's  cost.  This  meant  his  profit  would  be  $5  to  $8  more  per 
cartridge  than  what  other  licensees  made  on  games  manufactured 
by  Nintendo.  Combined,  he  was  about  to  make  perhaps  $30  to  $40 
million  on  "Tetris." 

That  difference  was  pocket  change  for  Arakawa  and  Lincoln, 
who,  back  at  their  squalid  apartment,  finished  off  the  warm 
Heineken  they  had  bought  earlier.  They  were  too  excited  to  sleep 
and  sat  up  all  night  talking. 

Heading  to  the  airport  the  next  morning  to  fly  home,  Arakawa 
said,  "I'm  never  coming  back  to  this  place  again." 

"Not  so  fast!"  Lincoln  interrupted.  "We  promised  we'd  be  back 
with  a  bunch  of  Game  Boys  for  their  hospitals  and  orphanages." 

Arakawa  shook  his  head  and  grinned.  "We  did,"  he  said,  "and 
they'll  be  very  grateful  for  them  whenyow  deliver  them." 

"We  knew  we  had  those  bastards  by  the  balls,"  Howard  Lincoln 
says.  "We  knew  we  were  going  to  make  a  fortune  on  this  product 
and  they,  in  turn,  were  going  to  get  kicked  in  the  head."  He  wor- 
ried only  about  what  Robert  Maxwell  would  do  when  he  heard  that 
Nintendo  had  snatched  "Tetris." 

In  late  March,  Belikov  sent  telexes  to  Mirrorsoft  and  to  Stein  at 
his  London  office.  Hand-held  "Tetris"  rights  were  no  longer  avail- 
able. The  telex  stated,  "It  is  a  pity  that  we  were  forced  to  conclude 
the  contract  concerning  Tetris'  for  hand-held  with  another  firm." 

Stein  sublicensed  his  hard-won  coin-op  rights  to  Mirrorsoft,  but 
Maxwell's  company  was  unable  to  secure  the  most  valuable  rights, 
in  particular  the  home  video-game  rights  that  it  had  already  subli- 
censed to  Atari  Games.  Mirrorsoft  was  in  trouble  because  Atari 
Games  had  already  invested  millions  in  the  Tengen  version  of 
"Tetris." 

Back  in  Redmond,  Lincoln  relished  the  moment  he  sent  a  fax  on 
March  31  to  Hide  Nakajima  and  Atari  Games  in  California.  It 
informed  Nakajima  and  company  that  they  must  "cease  and  desist 


THE    "TETRIS"    SONG  331 

from  any  further  manufacture,  advertisement,  promotion,  offer  for 
sale  or  sale  of  Tetris'  for  the  NES  or  any  other  home  system" 
because  the  rights  belonged  to  Nintendo. 

An  attorney  from  Dennis  Wood's  office  ripped  the  fax  from  the 
machine  and  read  it  quickly,  stared  at  the  paper,  shocked,  and 
rushed  to  Dennis  Wood's  office.  Wood  read  and  reread  the  fax 
before  walking,  stony-faced,  into  Hide  Nakajima's  office. 

Tengen  quickly  called  Mirrorsoft  to  find  out  what  was  going  on. 
The  initial  response  from  Mirrorsoft  was  not  to  worry;  the  rights 
were  theirs.  Whatever  Nintendo  and  the  Russians  were  up  to 
would  not  work,  Dennis  Wood  was  told. 

It  took  until  April  7  for  Tengen  to  respond  to  Nintendo.  "We  are 
in  receipt  of  your  letter  .  .  .  and  quite  frankly  are  quite  confused. 
As  Nintendo  has  known  since  last  year,  Tengen  received  all  NES 
rights  to  the  game  Tetris'  in  early  1988.  These  rights  are,  in 
Tengen's  view,  clear  and  unequivocal.  .  .  ." 

Howard  Lincoln  offered  to  discuss  things  further,  but  by  then, 
on  April  13,  Atari  Games  had  filed  an  application  for  a  copyright 
on  the  "audiovisual  work,  the  underlying  computer  code  and  the 
soundtrack"  for  "Tetris"  for  the  Nintendo  system.  Atari  did  not 
inform  the  Copyright  Office  that  its  version  of  "Tetris"  was  simply 
a  spruced-up  version  of  Alexey  Pajitnov's  game,  or  that  Nintendo 
had  informed  Atari  that  it  held  the  exclusive  rights  to  the  game. 

In  a  conference  in  London,  Jim  Mackonochie  told  Kevin  Max- 
well about  Nintendo's  frontal  attack.  Maxwell  decided  it  was  time 
to  inform  his  father,  and  the  senior  Maxwell  "went  berserk,"  as  an 
associate  put  it.  "He  went  ape  shit." 

When  told  that  the  Soviets  had  broken  the  protocol  agreement, 
Robert  Maxwell  had  Kevin  explain  the  details  of  the  "Tetris"  nego- 
tiations. A  protocol  agreement  is  not  a  legal  document,  but  it  is, 
the  elder  Maxwell  insisted,  the  equivalent  of  a  gentlemen's  agree- 
ment. To  break  it  was,  according  to  Robert  Maxwell,  tantamount  to 
a  slap  in  the  face.  The  ultimatums  Mirrorsoft  had  been  given  by 
the  Russians  were  clearly  for  show;  the  legal  right  of  first  refusal 
had  been  mocked. 

At  that  time,  Robert  Maxwell  was  steadfastly  building  a  global 
media  empire  that  would  span  more  territory  than  Her  Majesty's 
empire  ever  did.  "Information  is  growing  at  20  percent  a  year," 


332  GAME    OVER ' 

Maxwell  said  in  the  early  1960s.  "Communications  is  where  oil  was 
ten  years  ago.  There  will  be  seven  to  ten  global  communications 
corporations.  My  ambition  is  to  be  one  of  them."  He  had  pursued 
this  ambition  tenaciously,  gobbling  up  or  founding  communica- 
tions-related companies  from  Britain  to  China,  the  Soviet  Union, 
and  Brazil. 

Maxwell  not  only  had  a  formidable  world  presence  as  a  business- 
man, but  used  his  position  to  gain  remarkable  influence  in  world 
politics.  He  was  a  trusted  adviser  of  leaders  in  Israel  and  Canada 
and  a  powerful  force  in  opposition  to  the  Conservative  govern- 
ments of  Margaret  Thatcher  and  John  Major  in  Britain.  He  spoke 
nine  languages  fluently,  and  his  phone  rang  incessantly  with  calls 
from  world  leaders.  When  a  secretary  told  him  that  the  prime 
minister  was  on  the  phone,  he  asked,  "Which  one?" 

Maxwell  was  trusted  by  Soviet  president  Mikhail  Gorbachev,  but 
he  had  been  a  familiar  face  in  the  Kremlin  even  earlier.  He  had 
known  and  published  books  by  four  former  Soviet  leaders — Brezh- 
nev, Andropov,  Gromyko,  and  Khrushchev — so  there  was  every 
reason  to  believe  his  boasts  about  his  influence  in  the  U.S.S.R. 

Although  Maxwell's  son  Kevin  was  in  charge  of  Mirrorsoft  over 
Mackonochie,  the  elder  Maxwell  had  a  twenty-four-hour-a-day 
watch  on  all  aspects  of  his  parent  companies,  Maxwell  Communi- 
cations Corporation  and  the  Mirror  Group.  It  was  a  way  to  be 
certain  that  no  one,  not  even  his  sons,  knew  exactly  what  he  was  up 
to.  He  was  a  general  who  kept  his  commanding  officers  in  the  dark 
on  most  important  operations,  informing  them  on  a  need-to-know 
basis  and  playing  them  off  against  each  other.  He  staged  surprise 
troop  inspections  to  keep  his  top  brass  on  their  toes. 

Kevin  Maxwell  tried  tQ  avoid  going  to  his  father  for  anything, 
but  big  guns  were  required  in  the  "Tetris"  deal.  When  he  was  told 
that  the  Soviets  had  double-dealt  them,  Robert  Maxwell  punished 
his  desk  with  his  fist.  "They  won't  get  away  with  it,"  he  bellowed. 
"Rest  assured  of  that."  He  promptly  wrote  letters  to  his  friends  in 
the  Kremlin,  including  the  minister  of  foreign  economic  relations, 
who  catered  to  him  when  he  visited  Moscow.  "We  attach  high 
importance  to  our  excellent  commercial  relations  with  the  Soviet 
government  and  many  leading  agencies  in  the  fields  of  informa- 


THE    "TETRIS"    SONG 


tion,  communications,  publishing  and,  indeed,  pulp  and  paper  pro- 
duction," Maxwell  wrote.  "We  face  the  prospect  of  all  this  being 
jeopardized  by  the  unilateral  action  of  one  particular  agency." 

That  agency,  Elorg,  was  concerned  when  there  were  rumblings 
from  above.  However,  this  was  perestroika  and,  as  Jim  Macko- 
nochie  put  it,  the  Elorg  bureaucrats  were  "feeling  their  oats."  Still, 
when  the  foreign  economic  relations  minister  began  to  pry  into  the 
agency's  affairs,  Belikov  realized  trouble  was  brewing. 

Next  Maxwell  contacted  his  own  government  and  asked  Lord 
Young,  secretary  of  state  for  trade  and  industry  in  Britain,  to  inter- 
vene; he  wanted  "Tetris"  to  be  discussed  between  the  heads  of 
state  during  a  forthcoming  visit  by  Gorbachev. 

Word  filtered  back  to  the  Moscow  Academy  of  Science  that 
Maxwell  was  throwing  his  substantial  weight  around,  and  people 
there  and  at  Elorg  worried  that  their  authority  might  be  under- 
mined. At  the  same  time,  they  were  also  delighted.  In  a  strategy 
meeting  with  Belikov,  the  Academy  chiefs  debated  how  to  respond 
to  the  Central  Committee  of  the  Communist  Party,  which  was 
certain  to  react  to  an  inquiry  from  the  secretary  general. 

Belikov  felt  justified  in  having  made  the  deal  with  Nintendo,  and 
he  planned  to  stand  up  for  it.  For  all  his  dinner  parties  with  the 
Gorbachevs,  Maxwell  had  offered  the  Academy,  via  their  dealings 
with  Elorg,  only  a  fraction  of  what  Nintendo  would  bring  to  the 
country's  coffers.  In  addition,  Mirrorsoft  was  continually  behind  in 
its  payments.  Most  of  all,  Belikov  was  convinced  that  Mirrorsoft 
had  willfully  stolen  the  Russians'  game,  and  that  Gorbachev  him- 
self would  understand  that  Elorg  had  made  the  correct  decision. 
Elorg,  Belikov  decided,  would  defend  its  decision  whatever  the 
pressures. 

The  infighting  was  epic  as  Elorg  and  the  factions  of  the  Party 
loyal  to  Maxwell  exchanged  urgent  messages.  There  were  threats 
of  prosecution,  and  that  the  KGB  would  be  used  against  individu- 
als who  refused  to  cooperate.  The  pressure  on  the  Russians 
peaked  when  Robert  Maxwell  flew  to  Moscow  to  meet  Gorbachev 
directly.  He  was  prepared  to  discuss  his  planned  printing  ventures 
and  the  newspapers  he  wanted  to  launch,  but  first  on  his  list  was 
"Tetris." 


334  GAME    OVER 


Maxwell  arrived  in  Moscow  on  his  private  jet  and  was  whisked  to 
the  Octoberskaya,  the  government's  elite  hotel,  by  police  motor- 
cade. The  meeting  that  afternoon  was  friendly,  and  he  brought 
"Tetris"  up  only  after  initial  small  talk  and  joking.  Maxwell  later 
claimed  that  after  the  discussion,  Gorbachev  promised  him  the 
matter  would  be  resolved  to  his  satisfaction;  "He  said  I  should  no 
longer  worry  about  the  Japanese  company." 

Lincoln  returned  to  Moscow  in  late  April  and  was  joined  by  his 
New  York  lawyers,  Huhs  and  John  Kirby,  as  well  as  one  of  Kirby's 
associates,  Bob  Gunther.  For  the  New  York  attorneys,  the  trip 
began  with  a  comedy  of  errors.  Gunther  dropped  and  broke  a 
printer  he  had  lugged  from  New  York,  and  then  left  his  wallet, 
which  contained  $1,000,  in  a  Moscow  taxi.  Kirby  had  all  his  shirts 
stolen  at  Kennedy  Airport,  and  as  a  result  he  had  to  shop  for 
clothing  in  Moscow  before  he  could  begin  the  series  of  meetings. 
He  found  a  stack  of  pitiful  polyester  shirts  at  a  concession  stand  on 
a  street  near  his  hotel. 

The  Nintendo  team  showed  up  for  a  meeting  in  the  main  Elorg 
conference  room,  where  Belikov,  Pajitnov,  and  half  a  dozen  other 
Russians  were  waiting,  visibly  shaken.  They  were  not  unfriendly, 
just  burdened;  increasing  pressure  was  descending  on  them  from 
the  top.  The  meeting  progressed  with  no  mention  that  there  was 
anything  wrong,  but  Howard  Lincoln  sensed  trouble.  "What  is  it?" 
he  asked  Belikov.  "What  has  happened?" 

Belikov  shook  his  head  vigorously.  "Nothing  has  changed,"  he 
said,  but  during  a  break  in  the  meeting  he  pulled  Lincoln  aside. 
"You  do  not  understand,"  Belikov  said  under  his  breath.  "We  have 
done  the  right  thing  with  you,  but  the  Maxwells  have  threatened 
us.  We  have  said,  'No,  we  will  not  be  threatened  by  you.  A  contract 
is  a  contract  and  we  will  honor  it  and  Nintendo  is  our  licensee.'  " 
Whispering,  he  continued,  "But  I  must  tell  you,  Mr.  Lincoln,  we 
are  getting  calls  from  the  Kremlin,  calls  from  people  who  never 
before  knew  we  existed.  Many  of  them  have  shown  up  to  examine 
our  records  and  to  question  us  on  this  deal.  We  have  told  them  we 
have  done  the  right  thing.  We  have  stood  up  to  them,  but  we  do 
not  know  what  will  happen." 


THE    "TETRIS"    SONG 


The  meeting  resumed  with  a  hint  of  counterespionage  in  the  air. 
There  were  worries  about  spies  in  Elorg  and  KGB  surveillance,  not 
only  of  the  meetings  but  everywhere  twenty-four  hours  a  day- 
tapped  hotel  telephones,  monitored  strolls,  and  bugged  restaurant 
tables. 

Preparing  for  the  worst,  the  Nintendo  attorneys  interviewed 
Pajitnov  the  next  day,  as  well  as  people  at  the  Academy  of  Science, 
the  Computer  Center,  and  Elorg,  and  examined  every  scrap  of 
paper  that  dealt  with  "Tetris."  Belikov  also  wrote  a  lengthy  letter 
to  John  Kirby  recounting  his  version  of  the  "Tetris"  history,  and 
this  was  later  included  in  the  court  record  as  Belikov's  declaration. 

In  the  meantime,  on  his  jet  winging  its  way  from  London  to 
Jerusalem  for  a  meeting  with  Israel's  Prime  Minister  Yitzhak 
Shamir  and  Defense  Minister  Moshe  Arens,  Robert  Maxwell  was 
asked  by  a  reporter  why  his  intervention  with  Gorbachev  had  ap- 
parently been  futile.  He  snapped,  "How  do  you  know  about  that 
deal?  How  do  you  know  about  the  meeting?"  Then  he  shrugged  it 
off  as  if  it  had  been  inconsequential.  "So  much  money  was  in- 
volved, his  people  convinced  Gorbachev  to  work  with  the  Japanese 
company,"  he  said.  "I  did  what  I  could."  He  blamed  his  losing  the 
fight  to  Gorbachev's  tenuous  hold  on  power.  "He  said  other  peo- 
ple in  the  government  felt  strongly  that  it  should  go  the  other  way, 
so  we  were  stopped."  Maxwell  insisted  that  the  principle  was  what 
had  goaded  him.  "I  am  an  honorable  man  and  I  expect  honorable 
treatment,  but  you  take  your  lumps  along  the  way."  It  was  not  the 
last  lump  Maxwell  would  take. 

In  the  middle  of  the  night,  Howard  Lincoln  was  awakened  in  his 
Moscow  hotel  room  by  the  telephone.  The  operator  said  she  had  a 
call  from  America. 

The  time  in  Redmond,  eleven  hours  behind  Moscow,  was  two  in 
the  afternoon,  and  the  caller  was  one  of  his  associates  at  NOA; 
"Tengen  has  sued  us,"  she  said. 

At  Elorg  the  next  morning,  Lincoln  announced  this  news  with  a 
bit  of  glee.  The  Soviets  were  in  for  a  taste  of  the  American  legal 
system,  as  sluggish  and  inefficient  as  the  leviathan  Soviet  bureau- 
cracy. 


33B  GAME    OVER 


To  begin  to  prepare,  Lincoln,  together  with  Huhs,  Kirby,  and 
Gunther,  continued  to  interrogate  each  of  the  principals  involved 
in  the  "Tetris"  negotiations,  wanting  to  be  certain  their  case  was 
airtight.  Before  it  was  all  over,  Alexey  Pajitnov  would  tell  his  story 
a  few  dozen  times.  When  he  was  satisfied,  Lincoln  flew  to  Japan  to 
confer  with  Yamauchi  and  Hiroshi  Imanishi  before  heading  home. 
Yamauchi  was  delighted  with  everything  that  had  happened,  un- 
concerned about  the  lawsuit.  It  was  the  kind  of  wheeling  and  deal- 
ing he  admired.  "You  and  Arakawa-san  have  done  well,"  he  said. 

Back  home,  Lincoln  filed  a  countersuit  against  Tengen,  and  law- 
yers on  both  sides  girded  for  battle.  Evidence  was  gathered  and 
depositions  were  taken  in  the  United  States,  England,  and  then,  in 
June,  in  Moscow. 

John  Kirby's  staff  continued  to  investigate  on  Nintendo's  behalf 
in  the  United  States.  Kirby  found  that  Tengen  had  filed  applica- 
tions for  trademark  registration  of  "Tetris"  in  the  United  States, 
Japan,  Australia,  Canada,  the  United  Kingdom,  West  Germany, 
Italy,  and  Spain.  Pajitnov  sat  for  still  another  interview,  this  one 
four  hours  long.  Huhs  had  Pajitnov  reconstruct,  in  ponderous  de- 
tail, the  story  of  "Tetris,"  from  its  inception  to  the  first  letter  from 
Stein  and  up  to  the  present. 

Tengen  shipped  its  first  batch  of  "Tetris"  cartridges  in  May  1989, 
despite  the  notice  it  had  received  from  Nintendo  and  the  pending 
litigation.  Setting  out  to  sell  what  the  company  felt  would  be 
Tengen's  hottest  game  ever,  Randy  Broweleit  and  Dan  Van 
Elderen  placed  a  full-page  ad  in  USA  Today  announcing  "Tetris": 
"It's  like  Siberia,  only  harder,"  the  ad  read.  "It's  here,  America 
.  .  .  The  nerve-wrackingest  mind  game  since  Russian  Roulette. 
...  So  round  up  a  few  of  your  high-IQ  pals,  okay?  You  know, 
macho  men  with  the  first-strike  capability  to  beat  the  Russian  pro- 
grammers who  invented  it.  .  .  .  But  there's  one  little  catch.  If  you 
can't  make  the  pieces  fit  together  an  avalanche  of  blocks  thunders 
down  and  buries  you  weaklings!"  This  was  hardly  in  tune  with 
Pajitnov's  vision  of  "Tetris"  as  a  peacemaker. 

Tengen  held  a  grand  reception  for  retailers,  trade  reps,  and  the 
press  at  the  Russian  Tea  Room  in  New  York  on  May  17.  The  place 
was  packed,  and  there  was  free-flowing  vodka  and  Russian  hors 
d'oeuvres  amid  the  Tea  Room's  year-round  Christmas  motif.  Rus- 


THE    "TETRIS"    SONG  3  3  "7 


sian  music  played  in  the  background,  and  Tengen  "Tetris"  games 
were  set  up  for  play. 

Beginning  in  June,  the  case  was  heard  in  San  Francisco  in  the 
courtroom  of  Judge  Fern  Smith,  who  also  was  trying  the  Nin- 
tendo-Atari Games  antitrust  and  breach-of-contract  cases.  Ulti- 
mately the  "Tetris"  suit  hinged  on  personalities,  semantics,  and 
two  lines  buried  in  the  pounds  of  documents.  Stein's  contract  with 
the  Russians  stipulated  that  he  was  being  given  the  rights  for  com- 
puters, and  no  one  argued  this  point.  But  Atari  Games  contended 
that  the  Nintendo  system  was  a  computer,  a  microprocessor-based 
machine  that  ran  software.  To  prove  that  there  was  no  valid  distinc- 
tion between  the  NES  and  other  computers,  Atari  Games'  attor- 
neys noted  that  Nintendo  itself  viewed  its  machine  as  a  computer, 
with  planned  hookups  that  would  connect  to  the  expansion  portal. 
The  anticipated  peripherals— such  as  a  modem,  keyboard,  and, 
ultimately,  a  CD— were  proof  that  the  NES  was  a  computer.  In 
Japan,  the  NES  was  even  called  the  Famicom,  or  Family  Com- 
puter. As  one  Tengen  spokesman  observed,  "In  court  Nintendo 
went  to  great  lengths  to  say  that  the  NES  was  a  toy  and  its  car- 
tridges were  the  equivalent  of  Barbie's  arms  and  legs,  but  at  the 
same  time  they  were  signing  up  AT&T  to  use  its  machine  for  stock 
reports.  There  was  a  Nintendo  computer  network  in  Japan  and 
one  planned  in  the  U.S.  Sounds  like  a  computer  to  me,"  he  said. 

The  Atari  contingent  echoed  the  charges  made  by  Robert  Max- 
well that  the  Soviets  saw  they  could  make  a  lot  more  money  from 
Nintendo,  so  they  found  a  loophole  and  pleaded  ignorance.  This 
was  in  spite  of  Alexey  Pajitnov's  insistence  that  the  deal  never  was 
meant  to  include  more  than  PCs;  Pajitnov,  the  Atari  contingent 
charged,  was  Nintendo's  dupe,  instructed  on  exactly  what  to  tell 
the  court. 

Dan  Van  Elderen  believes  the  Russians  were  less  innocent  than 
they  pretended  to  be.  "Whether  the  language  was  ambiguous  or 
not,  they  knew  they  had  sold  all  those  rights  until  they  figured  out, 
counseled  by  Henk  Rogers  and  Nintendo,  that  there  was  a  loop- 
hole. They  realized  they  could  have  gotten  a  lot  more  money,  so 
they  double-dealt  us  all." 

Tengen's  Randy  Broweleit  revealed  in  his  deposition  how  much 


338  GAME    OVER 


was  on  the  line  for  Atari  Games.  In  1988  his  company  had  devoted 
more  than  three  personnel  years  to  "Tetris,"  and  more  than 
$250,000.  By  January  1989,  Tengen  had  committed  to  manufacture 
300,000  "Tetris"  cartridges  and  spent  $3  million  on  them,  plus 
millions  on  packaging,  engineering,  and  marketing.  One  hundred 
thousand  units  had  been  shipped,  and  there  were  initial  orders  for 
150,000  before  the  game  was  released  in  May  1989. 

Hide  Nakajima  insisted  that  Nintendo  had  colluded  to  steal  his 
game.  "Something  went  on  between  the  Russian  author  and  Nin- 
tendo," he  charged.  "Nintendo  knew  we  had  the  license,  and  it 
urged  us  to  go  forward  with  the  game.  Nintendo  only  cared  once 
we  filed  the  antitrust  suit  against  them.  They  went  after  us.  How- 
ard Lincoln  and  Arakawa  wanted  to  stop  us.  It  was  revenge." 
Howard  Lincoln  has  affirmed  this  last  point.  "It  was  revenge,"  he 
says.  "And  you  know  what  they  say  about  how  sweet  revenge  can 
be." 

Nintendo's  argument  was  straightforward:  in  spite  of  their  inno- 
cence about  international  software  licensing,  the  Soviets  knew  ex- 
actly what  they  were  doing  when  they  assigned  the  rights  to  Stein. 
Computers  were  computers.  Just  as  the  Soviets'  contract  with  Stein 
excluded  the  rights  to  hand-held  and  arcade  games,  the  Russians 
had  had  no  intention  of  selling  home  video-game  rights.  T\vo  lines 
in  the  contract  proved  it:  the  line  stipulating  computers  in  the  main 
body  of  the  final  contract,  and  also  a  line  in  the  amendment- 
alteration  no.  1— which  specified  that  a  computer  had  a  keyboard, 
monitor,  and  floppy-disk  drives.  The  NES  machine  had  none  of 
those;  ergo,  it  was  excluded.  Nintendo  held  fast  to  the  position  that 
it  had  bought  the  "Tetris"  rights  fair  and  square,  giving  the  Rus- 
sians a  fair  deal,  while  Tengen's  rights  were  part  of  a  faulty  chain. 
The  weak  link  was  the  original  one  with  the  West,  Robert  Stein's 
contract,  which  covered  PCs  clearly  and  explicitly.  Assumptions 
made  beyond  that,  whether  by  Stein,  Mirrorsoft,  or  Tengen,  were 
nothing  short  of  thievery. 

Nintendo  and  Tengen  were  trying  to  stop  each  other  from  selling 
"Tetris"  with  cross  motions  that  they  filed  for  preliminary  injunc- 
tions to  prohibit  the  other  from  selling  the  game.  A  hearing  about 
this  was  held  on  June  15,  1989. 
After  reviewing  the  depositions  and  mass  of  documents,  Judge 


THE    "TETRIS"    SONG  339 


Smith  decided  that  there  was  no  evidence  that  Tengen  (and  the 
licensing  chain  that  awarded  it  the  rights)  had  ever  been  granted 
the  video-game  rights.  She  said  she  believed  that  Nintendo  was 
likely  to  prevail  in  court,  and  therefore  she  granted  Nintendo's 
request  for  a  preliminary  injunction.  Tengen  was  enjoined  and  re- 
strained from  manufacturing  and  selling  the  home  video-game 
"Tetris"  as  of  June  21. 

At  this  point,  Hide  Nakajima,  Dennis  Wood,  and  Dan  Van 
Elderen  (Randy  Broweleit  had  left  Atari  Games  to  start  an  inde- 
pendent software  licensing  company)  could  only  hope  that  the 
court  ultimately  would  reverse  this  opinion,  although  it  seemed 
unlikely  (and  no  trial  was  scheduled  as  of  late  1992).  Tengen's 
production  of  "Tetris"  cartridges  ground  to  a  halt.  Although  it 
claimed  that  its  version  of  "Tetris"  was  superior  to  the  one  Nin- 
tendo released,  Tengen  had  to  lock  its  games  away  in  a  warehouse 
pending  a  final  verdict,  and  its  "Tetris"  soon  became  a  collector's 
item,  selling  for  as  much  as  $150. 

Nintendo  released  its  NES  version  of  "Tetris"— slickly  rede- 
signed, with  a  score  of  Russian  music— and  it  sold  rapidly,  remain- 
ing on  the  Nintendo  top-ten  most-popular  game  list  (behind 
"Super  Mario  Bros.  3")  for  over  a  year.  Pajitnov  laughed  when  he 
heard  that  when  millions  of  American  children  watched  the  eve- 
ning news  and  saw  a  shot  of  St.  Basil's  Cathedral  in  Red  Square, 
they  shouted  excitedly,  "Look,  the  Tetris'  towers!"  Similarly, 
Tchaikovsky  lost  credit  for  his  "Dance  of  the  Sugarplum  Fairy"; 
kids  knew  it  only  as  "the  Tetris'  song."  On  a  modest  level, 
Pajitnov's  dream  that  his  game  would  be  a  bridge  between  cultures 
was  realized.  "Tetris"  contest  winners  were  awarded  a  ten-day  tour 
of  Kiev,  Leningrad,  and  Moscow,  "home  of  Alexey  Pajitnov."  Nin- 
tendo Power  ran  features  about  his  homeland,  and  kids  who  played 
the  game  saw  that  something  wonderful  had  come  from  the  former 
"evil  empire." 

Grown-ups  flocked  to  "Tetris"  too.  Arakawa  had  predicted  cor- 
rectly: feedback  from  its  customers  told  NOA  that  a  third  to  a  half 
of  the  "Tetris"  players  were  adults,  and  Nintendo's  presence  in  the 
adult  market  increased  to  such  a  degree  that  almost  half  (46  per- 
cent) of  the  Game  Boy  players  in  the  West  were  adults. 
Arakawa  was  also  right  about  another  thing:  "Tetris"  sold  mil- 


340  GAME    OVER 


lions  of  Game  Boys.  A  total  of  32  million  of  them  sold  worldwide 
through  1992,  more  than  Hiroshi  Yamauchi  had  predicted.  A  U.S. 
senator,  a  "Tetris"  addict,  joked  that  the  game  was  a  Soviet  plot  to 
distract  and  hypnotize  Americans. 

The  game  also  did  things  for  Nintendo  that  Arakawa  hadn't 
anticipated.  When  the  company  was  attacked  by  educators  and 
psychologists  for  the  mindless  violence  and  lack  of  redeeming 
value  of  its  games,  Nintendo  now  had  fodder  for  counterargu- 
ments. Some  theories  claimed  that  "Tetris"  play  increased  intelli- 
gence scores  (at  least  in  the  area  of  spatial  relationships).  Also,  a 
study  in  Moscow  showed  that  "Tetris"  helped  improve  driving 
skills  because  it  trained  players  to  make  decisions  extremely 
quickly,  shortening  drivers'  reaction  time. 

Kids  were  getting  Tetrisized  and  played  compulsively.  After  they 
stopped  playing,  however,  they  complained  that  "Tetris"  shapes 
remained  impaled  somewhere  in  their  consciousness.  Grown-ups 
became  Tetrisized  as  much  as  kids.  A  reader  wrote  in  to  a  national 
women's  magazine;  "[Tetris']  led  me  to  beg  my  coworkers  not  to 
leave  me  behind  in  the  office  when  they  left,  for  fear  I'd  stay 
[there]  all  night  playing.  I  removed  the  game  from  my  computer  at 
home  and  threw  it  away,  but  I  passed  a  Game  Boy  in  a  store  and 
couldn't  stop.  I  went  in  and  bought  it."  A  Russian  cosmonaut  even 
took  one  into  space.  (The  Russian  had  been  given  the  game  by 
Howard  Lincoln,  who  had  returned  to  Moscow  with  his  sixteen- 
year-old  son,  Brad,  on  what  was,  for  the  most  part,  a  social  visit. 
He  brought  with  him  the  one  hundred  Game  Boys  that  Arakawa 
had  promised.  Arakawa  kept  the  other  part  of  his  promise  by 
staying  home.) 

The  journey  of  Alexey  Pajitnov's  program  from  Moscow  to  most 
places  on  the  globe— and  to  space  and  back— left  a  number  of 
casualties  in  its  wake.  Robert  Stein  says,  "  Tetris'  made  enemies 
out  of  friends  and  corrupted  people  left,  right,  and  center."  An- 
dromeda, Mirrorsoft,  and  Atari  Games,  he  says,  felt  that  every 
penny  Nintendo  earned  on  "Tetris"  should  be  theirs.  "So  why  don't 
we  all  get  together  instead  of  fighting  like  lunatics?"  he  asks.  But 
fight  like  lunatics  they  did,  so  infighting  tied  up  most  of  the  profits 
earned  by  the  versions  of  the  game  not  controlled  by  Nintendo  and 


THE    "TETRIS"    SONG  341 


BPS.  Mirrorsoft  saw  modest  profits  on  its  floppy-disk  "Tetris,"  but 
almost  nothing  from  the  licenses  it  sold  to  Atari  Games,  which 
refused  to  pay  Mirrorsoft  anything  pending  the  outcome  of  the 
litigation  with  Nintendo. 

Atari  Games  released  a  coin-op  game  and  sold  15,000  to  20,000 
units,  according  to  Dan  Van  Elderen.  It  also  earned  a  royalty  on 
the  arcade  games  Sega  sold  in  Japan,  but  Atari's  sublicense  to 
Henk  Rogers  was  useless  and  it  would  probably  have  to  return 
Rogers's  advance  for  the  home  video-game  rights  in  the  original 
deal. 

Robert  Stein  admitted  that  over  the  years  he  had  made  about 
$200,000  on  "Tetris"  but  said  he  could  have  made  millions.  In- 
stead, he  watched  as  the  Soviets  severed  all  of  his  ties  to  the  game, 
citing  nonpayment  of  royalties.  Stein  lost  his  rights  to  the  computer 
versions  of  "Tetris"  in  1990.  Spectrum  Holobyte  had  been  paying 
royalties  to  Mirrorsoft,  which  refused  to  pay  Stein.  The  Russians' 
75  percent  of  Stein's  nothing  was  nothing,  so  Elorg  finally  revoked 
his  license.  In  order  to  retain  the  rights  to  "Tetris"  on  PCs  (and  to 
retain  the  rights  to  sell  "Tetris  2"),  Spectrum  Holobyte  had  to 
negotiate  a  new  deal  directly  with  the  Soviets.  Gilman  Louie  found 
that  the  Soviets  had  learned  a  great  deal  from  the  "Tetris"  experi- 
ence, and  he  had  to  pay  a  far  higher  royalty  than  in  his  deal  with 
Mirrorsoft  for  the  license  he  already  had. 

At  this  point  Stein  still  held  the  coin-operated  "Tetris"  rights, 
but  he  received  nothing  for  them  as  long  as  Atari  Games  didn't  pay 
Mirrorsoft.  Since  he  didn't  pay,  Elorg  announced  in  February  1992 
that  it  was  terminating  the  coin-op  deal  as  well.  Stein  vowed  to 
fight,  but  it  would  be  an  uphill  battle.  The  man  who  had  discovered 
"Tetris"  for  the  West  lost  all  his  rights  to  the  game. 

The  lawsuit  remained  unsettled  well  into  1992,  although  rumor 
had  it  that  Atari  Games  would  settle.  If  this  happened  (or  if  Nin- 
tendo prevailed  in  court),  Atari  Games  would  probably  go  after 
Andromeda,  Mirrorsoft,  and,  ultimately,  Maxwell.  Maxwell  and 
Stein  had  warranted  that  they  owned  the  rights  they  had  sold,  and 
probably  would  be  held  responsible.  Stein  wouldn't  be  worth  going 
after,  but  Mirrorsoft,  with  Maxwell's  deep  pockets,  would  have 
been— that  is,  until  it  turned  out  that  those  pockets  were  actually 
black  holes.  The  upshot  of  the  scandalous  collapse  of  the  Maxwell 


342  GAME    OVER 


organization  was  the  dissolution  of  Mirrorsoft  (its  meager  assets 
were  bought  by  Acclaim  Entertainment)  following  Robert  Max- 
well's suspicious  death. 

Other  "Tetris"  players  fared  better,  although  Kevin  Maxwell  was 
left  to  suffer  for  his  father's  corrupt  business  practices.  Not  only 
was  he  left  with  no  assets  or  income,  but  there  was  a  good  chance 
he  would  be  indicted,  despite  the  fact  that  he  may  have  been  kept 
in  the  dark  about  Maxwell  senior's  illegal  maneuverings. 

Jim  Mackonochie  had  been  forced  out  of  Mirrorsoft  well  before 
it  collapsed,  back  when  Kevin  Maxwell  restructured  the  company 
in  1991.  Mackonochie  ended  up  working  as  a  consultant  in  the 
industry  before  being  hired  to  work  on  CDTV  software  by  Com- 
modore International  in  London. 

As  their  country  transformed,  the  Russians  at  Elorg  and  the 
Academy  of  Science  scattered,  although  Nikolai  Belikov  remained 
at  Elorg  long  after  the  Communist  Party  fell  from  power.  A  freer 
country  meant  increased  opportunities  for  trade,  and  Belikov,  no 
longer  saddled  by  the  pressures  of  the  Party's  interests,  saw  abun- 
dant possibilities  for  exporting  Russian  technological  achieve- 
ments. His  first  Yeltsin-era  task  was  negotiating  the  tough  deal 
with  Gilman  Louie  for  "Tetris  2"— designed  along  with  Pajitnov 
and  others. 

The  Academy's  Sasha  Alexinko  wound  up  in  Vienna,  where  he 
formed  a  trading  company.  Victor  Brjabrin  also  left  Russia  and 
found  challenging  work  in  Western  Europe  with  a  nuclear-regula- 
tory commission  run  by  the  United  Nations.  Young  Vadim  Ger- 
asimov  left  Russia  too.  At  only  twenty,  he  moved  to  Tokyo,  where 
he  studied  Japanese  and  worked  with  a  software  developer,  who 
then  advertised  that  the  codeveloper  of  "Tetris"  was  on  his  staff. 

In  America,  Phil  Adam  left  Spectrum  Holobyte  in  the  hands  of 
his  partner,  Louie,  who  took  Spectrum  on  to  new  ventures,  from 
new  combat  simulators  to  other  Nintendo  games.  In  1992,  Louie 
debuted  a  futuristic  video-game  system  for  arcades  and  shopping 
malls.  Kids  climbed  into  a  slick  pod  or  stood  inside  a  device  that 
looked  like  a  gyroscope,  strapped  on  binocular-like  goggles,  and 
entered  computer-generated  virtual  realities.  In  one  multicontes- 
tant  game,  players  stalked  each  other  in  a  surreal  cybernetic  envi- 
ronment of  multicolored  platforms  and  stairways.  Armed  with  a 


THE    "TETRIS"    SONG  343 

missile-lobbing  blaster,  they  "flew"  around  and  attempted  to  nail 
enemies  (who  broke  into  pieces  if  hit)  before  being  shot  them- 
selves, though  occasionally  a  pterodactyl  swooped  down  from  the 
sky  and  carried  them  off. 

In  his  modest  office  in  London,  Robert  Stein  continued  to 
struggle  to  keep  Andromeda  afloat.  He  distributed  Atari  Corp.'s 
computers  in  England  and  attempted  to  take  advantage  of  the 
post-Communist  revolution  in  Eastern  Europe,  particularly  in 
Hungary.  He  also  kept  trying  to  sell  Hungarian  games  in  the  West; 
perhaps  there  was  another  "Tetris"  out  there.  But  he  had  learned 
his  lesson:  if  he  found  a  great  game,  he  would  sew  up  all  the  rights 
before  selling  it. 

Henk  Rogers  made  more  from  "Tetris"  than  any  individual  save, 
ultimately,  Hiroshi  Yamauchi.  The  Russian  bureaucrats  at  Elorg 
and  the  Academy  made  almost  nothing,  although  the  Russian  gov- 
ernment made  millions  from  the  game,  mostly  from  the  Nintendo 
deal.  They  also  took  in  roughly  $150,000,  all  told,  from  Androm- 
eda, plus  advances  and  royalties  directly  from  Spectrum  Holobyte. 

As  always,  Nintendo  did  best  of  all,  though  it  is  impossible  to 
calculate  exactly  how  much  it  made  from  "Tetris,"  since  there  is  no 
way  to  measure  accurately  how  much  "Tetris"  contributed  to  the 
success  of  Game  Boy.  Three  million  "Tetris"  cartridges  for  the 
NES  were  sold,  plus  all  those  Game  Boy  units.  Once  a  customer 
bought  one,  Nintendo  could  sell  more  games,  an  average  of  three  a 
year,  at  $35  a  pop.  Not  counting  Game  Boy,  "Tetris"  brought 
Nintendo  at  least  $80  million.  Counting  Game  Boy,  the  figure  is  in 
the  billions  of  dollars  (in  both  1991  and  1992,  Game  Boy  earned 
nearly  $2  billion). 

Alexey  Pajitnov  made  very  little  money  directly  from  "Tetris" 
royalties  or  advances.  Elorg  had  made  and  then  canceled  a  side 
deal  that  would  have  granted  him  the  "Tetris"  merchandising 
rights  (Nintendo  eventually  got  them,  too),  so  he  ended  up  getting 
nothing  on  the  "Tetris"  watches,  clocks,  board  games,  and  the  like. 

Westerners  criticized  the  Soviet  system  that  robbed  Pajitnov  of  a 
stake  in  the  game  that  made  so  much  money  for  so  many  people, 
but  Belikov  defended  it.  "If  Tetris'  had  been  made  by  a  Boeing 
employee  on  Boeing  time  and  Boeing  sold  the  license,  would  the 
designer  have  received  any  more  than  Pajitnov?" 


GAME    OVER 


On  the  other  hand,  if  Pajitnov  had  retained  the  "Tetris"  rights 
and  signed  a  deal  typical  of  those  in  the  United  States,  he  would 
have  earned  up  to  15  percent  of  net  revenues.  Pajitnov  would  have 
seen  at  least  $3  million  if  he  was  earning  this  standard  percentage 
of  the  Soviet  government's  share.  If  he  had  licensed  it  directly,  the 
number  would  have  been  as  high  as  $20  million,  perhaps  more. 
Instead,  the  Computer  Center  awarded  Pajitnov  his  own  personal 
computer,  an  IBM  AT  clone,  for  which  he  was  grateful  since  it 
would  have  taken  him  sixteen  years  to  be  able  to  buy  one  on  his 
Academy  of  Science  salary. 

Henk  Rogers,  who  came  out  of  the  deal  with  a  good  relationship 
with  Elorg,  appealed  to  Belikov  on  Pajitnov's  behalf  in  a  letter.  He 
wrote,  "If  someone  plants  an  apple  tree  and  it  brings  you  many, 
many  apples,  you  ought  to  give  them  some  apples — it  would  en- 
courage them  to  plant  more  trees." 

There  was  no  response.  The  Elorg  team  was  not  particularly 
sympathetic.  Pajitnov's  apartment  was  nicer  than  the  homes  of 
most  of  his  Academy  superiors  and  the  Elorg  bureaucrats,  and  in 
addition  he  had  gained  recognition  throughout  the  world,  far  more 
than  any  Soviet  citizen  dared  hope  for. 

It  amazed  Pajitnov  that  Americans  couldn't  believe  he  wasn't 
bitter.  This,  he  came  to  realize,  was  one  of  the  key  differences 
between  him  and  most  of  the  people  he  met  in  the  West,  where 
financial  reward  was  the  measure  of  accomplishment.  "For  me,  to 
have  my  game  played  everywhere  is  the  greatest  thing  to  know,"  he 
says.  In  1989,  he  was  called  to  the  telephone  at  the  Computer 
Center  to  talk  to  a  reporter  who  was  writing  a  story  about  "Tetris." 
Every  question  was  slanted  to  make  Pajitnov  admit  that  he  was 
resentful,  but  he  told  the  reporter,  "I  will  make  my  games  and  send 
them  to  you.  You  can  fight  over  them." 

The  Soviet  Union  thawed,  and  as  trade  opportunities  increased, 
Pajitnov  was  able  to  take  advantage  of  the  success  of  his  creations 
by  licensing  games  and  other  programs  through  several  joint-ven- 
ture trading  companies  that  paid  small  advances  and  royalties  on 
his  designs.  With  the  income  that  trickled  in,  he  bought  a  car — his 
first,  a  used  Jugoli,  a  Russian  clone  of  an  outdated  Fiat.  The 
Pajitnov  family  had  something  more:  Peter  and  Dmitri,  Alexey's 


THE    "TETRIS"    SONG  345 


sons,  had  one  of  the  only  two  Nintendo  Entertainment  Systems  in 
the  U.S.S.R.,  which  had  been  sent  by  Henk  Rogers  (the  children  of 
his  friend  Vladimir  Pokhilko  had  the  other). 

One  day  in  spring  1989,  Pajitnov  found  himself  stuffed  into  a 
tourist-class  seat  on  an  Aeroflot  flight  to  Tokyo.  Pajitnov,  who  had 
rarely  been  out  of  Moscow,  stared  blankly  out  the  window.  Fever- 
ish from  a  flu,  he  couldn't  sleep.  He  watched  the  spotty  clouds 
below  him  and,  below  that,  the  ice  blue  of  the  Arctic  Ocean,  and 
waited  patiently  to  see  land. 

At  Narita  Airport,  after  claiming  his  one  small  suitcase  and 
fumbling  his  way  through  customs,  Pajitnov  saw  no  one  he  knew 
and  grew  fearful.  Perhaps,  he  thought,  it  was  all  a  mistake.  He 
spoke  no  Japanese  and  only  shaky  English.  It  was  almost  certain 
that  no  one  in  this  airport  spoke  Russian,  so  he  waited,  staring  at  a 
large-screen  television  set  up  in  the  waiting  area. 

It  was  some  time  later  that  Pajitnov  heard  his  name  paged  amid 
the  Japanese.  He  found  a  telephone  and  shouted  his  name.  Henk 
Rogers  was  on  the  phone:  "Sit  tight.  I'm  almost  there,"  he  said. 

Finally,  Pajitnov  looked  up  through  the  crowd  and  saw  Rogers's 
face  behind  his  familiar  thick  black  beard,  and  he  rose  and  threw 
his  husky  arms  around  his  friend. 

Pajitnov  wanted  nothing  more  than  to  sleep  off  his  flu,  but  Rog- 
ers wouldn't  hear  of  it.  Gunning  the  car,  he  headed  into  the  mega- 
watts of  neon  that  gave  daytime  Tokyo  a  surreal  pallor,  then 
dragged  the  Russian  into  a  building  and  up  an  elevator,  to  the 
lookout  atop  a  Tokyo  department  store.  The  breathtaking  view  was 
lost  on  Alexey,  though  he  was  duly  awed  when  Rogers  stopped  on 
the  way  home  for  groceries  at  a  supermarket.  There  was  more  food 
than  Pajitnov  had  ever  seen  in  one  place.  "When  you  see  it  in 
movies,  you  think  they  put  the  stuff  there  just  to  make  it  look  good, 
and  that  it's  not  really  like  this,"  he  says.  He  couldn't  believe  that 
people  passed  over  the  incredible  goods,  picking  some,  examining 
a  box,  rejecting  fruit  because  of  a  scratch  or  a  bruise.  His  wife, 
Nina,  had  asked  for  pictures  of  Tokyo,  so  he  snapped  shots  of  the 
aisles  full  of  food.  Before  he  left,  he  bought  jeans,  a  VCR,  a  small 
color  TV,  a  CD  player,  a  couple  of  Walkmen,  and  toys  for  his 
children  with  money  Rogers  had  given  him. 


346  GAME    OVER 


Then  they  drove  through  Tokyo  to  Rogers's  Yokohama  home, 
where  Pajitnov  slept  off  his  illness  before  beginning  his  three-week 
Japanese  adventure.  He  spent  the  first  week  accompanying  Rogers 
to  the  Yokohama  BPS  offices,  where  he  met  with  the  staff  and 
asked  a  nonstop  string  of  questions  about  the  video-game  industry. 
He  was  amazed  at  the  technical  prowess  of  programmers  and  of 
their  highly  sophisticated  development  tools,  and  he  devoured  in- 
formation about  how  games  were  marketed  and  distributed. 

Then  Rogers  took  Pajitnov  to  Kyoto  on  the  bullet  train.  The 
Russian  wore  a  necktie — for  the  first  time  since  his  wedding — to 
meet  Nintendo  executives.  He  was  treated  with  reverence  at  head- 
quarters, where  he  met  with  the  general  manager,  Hiroshi  Iman- 
ishi,  as  well  as  the  company's  marketing  director  and  other  NCL 
executives.  He  also  met  his  Japanese  peers — engineers  like  Gunpei 
Yokoi  and  his  R&D  1  staff,  and  game  designer  Sigeru  Miyamoto. 

In  the  afternoon,  Pajitnov  adjusted  his  tie  and  patted  his  hair 
down  before  he  was  ushered  into  Hiroshi  Yamauchi's  office,  where 
a  Russian  translator  sat  with  them  for  a  brief,  stilted  conversation. 
Yamauchi  told  Pajitnov  he  hoped  he  would  make  another  "Tetris," 
and  said  they  should  have  a  long  and  fruitful  relationship. 

Pajitnov  did  some  work  at  NCL,  too.  A  slightly  modified  version 
of  "Tetris"  for  Game  Boy  hadn't  yet  been  approved  by  him  (Nin- 
tendo provided  the  right  of  approval  that  Robert  Stein  had  only 
promised).  Testing  it,  Pajitnov  found  a  programming  glitch,  and 
worked  to  correct  it  with  a  team  of  NCL  programmers.  He  was 
taken  through  the  company's  development  area,  and  it  impressed 
him  even  more  than  what  he  had  seen  at  BPS.  Rows  of  automated 
game-testing  machines  filled  the  rooms.  Nintendo  tested  game  car- 
tridges that  had  been  manufactured  and  assembled  by  a  dozen 
competing  subcontractors.  Eighty  cartridges  from  each  batch  of  a 
thousand  were  examined.  Some  were  disassembled  by  engineers  so 
the  tooling  could  be  inspected,  and  others  were  tested  electroni- 
cally. If  even  one  of  the  eighty  cartridges  had  a  problem,  the  entire 
thousand  were  returned.  "It  was  as  rigorous  as  the  military  in 
Moscow,"  Pajitnov  said. 

Aside  from  business,  the  Russian  was  taken  to  restaurants, 
where  he  drank  a  good  deal  of  sake  and  beer.  For  the  first  time  in 


THE    "TETRIS"    SONG  3AV 


his  life  he  had  a  gin  and  tonic,  and  he  went  to  a  karaoke  bar  but 
refused  to  sing. 

Pajitnov  first  visited  the  United  States  in  January  1990.  The  trip 
was  sponsored  by  a  joint-venture  company  he  had  teamed  up  with 
in  Moscow.  His  first  stop,  after  changing  planes  in  New  York  and 
Chicago,  was  Las  Vegas,  where  the  Consumer  Electronics  Show 
was  in  progress.  Direct  from  the  breadlines  of  Moscow,  he  found 
himself  a  star  attraction  at  the  1990  consumer  show,  where  the 
only  lines  were  for  the  $3.69  all-you-can-eat  buffet  at  the  hotel. 
Lighting  a  Kool  cigarette  with  an  i  love  las  vegas  lighter,  he 
stared,  mouth  agape,  at  the  lobby  of  his  hotel.  "So  this  is  a  typical 
American  city,"  he  said  over  drinks  with  Gilman  Louie. 

After  interviews  and  meetings  in  Las  Vegas,  Pajitnov  flew  to  San 
Francisco,  where  Louie  escorted  him  through  a  maze  of  dinners 
and  parties.  When  he  had  his  first  taste  of  Kentucky  Fried  Chicken, 
it  was  a  profound  moment  for  him,  and  KFC  became  his  favorite 
American  food,  a  staple  when  his  hosts  weren't  pushing  fancy 
French  meals  and  California  cuisine  on  him.  (At  Stars,  in  San 
Francisco,  he  laughed  at  the  nouvelle  version  of  Russian  blini  with 
caviar,  as  pretty  as  a  painting  and  almost  microscopic  on  the  mas- 
sive plate.)  He  also  tried  tequila  for  the  first  time.  "Very  enjoy- 
able," he  says  with  a  smile. 

Pajitnov's  schedule  in  the  Bay  Area  was  hectic.  Spectrum 
Holobyte  booked  four  or  five  interviews  a  day,  but  he  didn't  com- 
plain. "I  have  to  take  care  of  the  royalty,"  he  said.  He  was  written 
about  in  dozens  of  computer  magazines  and  daily  newspapers.  He 
also  visited  Seattle,  where  he  dined  with  the  Arakawas  and  Lin- 
colns,  and  then  traveled  to  the  East  Coast.  In  New  York  City,  at 
the  Modern  Art  and  Metropolitan  museums,  he  saw,  for  the  first 
time  in  his  life,  the  originals  of  some  of  his  favorite  paintings.  It 
was,  he  says,  as  thrilling  as  anything  that  had  ever  happened  to 
him.  He  was  riveted  by  paintings  he  knew  intimately  from  books  in 
his  Moscow  home — Picassos,  Braques,  Legers. 

In  Boston,  Pajitnov  visited  MIT's  Media  Lab,  where  he  was 
invited  to  play  with  a  NEXT  computer.  There  were,  of  course, 
more  interviews.  After  several,  he  met  with  a  computer-magazine 
photographer  at  his  hotel.  When  he  was  left  alone  with  the  photog- 


34B  GAME    OVER 


rapher,  the  man  asked  him  to  change  into  lighter-colored  pants. 
Pajitnov  was  bewildered;  he  had  no  extra  clothing  with  him.  Then 
the  man  handed  him  a  twenty-pound  VGA  computer  monitor  and 
asked  him  to  put  it  on  his  head.  Pajitnov  satisfied  this  unusual 
request;  as  instructed,  he  sat  on  top  of  a  table  near  a  window 
overlooking  downtown  Boston  and  balanced  a  computer  monitor 
on  his  head  as  the  photographer's  strobe  flashed  and  camera's 
auto-wind  whirred. 

His  whirlwind  American  adventure  almost  over,  Pajitnov  flew  to 
meet  Henk  Rogers  in  Oahu  for  a  vacation,  where  they  swam, 
kayaked,  and  drank  lots  of  mai  tais.  Rogers  asked  Pajitnov  if  he 
would  come  to  work  full-time  for  BPS  in  Washington  State.  Would 
he  consider  leaving  the  Soviet  Union? 

Pajitnov  became  quiet  and  cast  his  eyes  downward.  "I  do  not 
have  an  answer  for  that  question,"  he  replied. 


5DNIC  BOOM  \ 


^ 


Between  them,  Hiroshi  Yamauchi  and  Minoru  Arakawa  had  cre- 
ated a  new  mammoth  industry  and,  with  it,  a  field  for  competition. 
Seven  American  and  Japanese  companies  were  marketing  video- 
game systems  by  1988.  But  the  contenders  had  little  success  in 
damaging  Nintendo's  share  of  the  market,  which  was  85  to  90 
percent  on  both  sides  of  the  Pacific.  Atari  sold  a  handful  of  its 
5200s  and  7800s,  and  Sega  sold  a  total  of  2  million  Master  Systems. 
Other  companies  sold  too  few  to  count. 

Having  failed  to  break  Nintendo's  lock  on  the  NES  generation 
of  video-game  systems,  the  would-be  Davids  attempted  to  topple 
Nintendo's  Goliath  in  the  next  generation  with  more  powerful 
hardware.  They  took  aim  at  Nintendo's  single  vulnerability:  its 
success.  Nintendo  was  dominant,  and  such  companies  tend  to  stag- 
nate by  sticking  with  old  technology.  The  problem  for  Nintendo, 
which  was  raking  in  a  large  part  of  its  fortune  from  licensees,  was 
that  it  had  so  much  invested  in  the  NES-Famicom  technology.  If 


350  GAME    OVER 

the  company  planned  to  release  a  new  system,  the  game-designing 
companies  would  worry  that  the  NES  was  obsolete,  and  the  shift 
could  precipitate  an  early  crash  of  its  bread-and-butter  NES  busi- 
ness. 

Nintendo  also  suffered  from  a  malaise  typical  of  industry  lead- 
ers. Fat  and  happy,  it  had  been  lulled  into  a  sense  of  invulnerabil- 
ity. Yamauchi  and  Arakawa  felt  they  didn't  have  to  react  to 
competitors  simply  because  they  were  Nintendo.  This  could  have 
been  a  fatal  mistake. 

At  first  the  competitors  were  like  termites  gnawing  at  the  base  of 
a  giant  sequoia:  merely  pests.  Nintendo  went  about  its  business  of 
selling  millions  of  systems  and  tens  of  millions  of  games  to  a  faint 
buzzing  sound  in  the  background. 

If  there  was  any  threat,  according  to  Yamauchi,  it  was  when 
NEC,  the  Japanese  computer  and  communications  giant,  entered 
the  video-game  business.  If  NEC  was  a  termite,  it  was  a  voracious 
one.  With  $22  billion  in  net  annual  sales,  the  company  was  sound 
and  well  run.  Each  year  it  invested  a  hefty  16  percent  of  its  net 
sales  in  R&D  and  engineering  programs — $3.7  billion  in  1988 — 
more  than  any  of  Nintendo's  annual  net  sales  until  1992. 

Yamauchi  also  viewed  NEC  as  a  potential  threat  because  of  its 
semiconductor  business;  it  had  a  direct,  inexpensive  source  of 
chips.  Most  important,  NEC  had  a  reputation  for  maintaining  a 
long-term  view.  Backed  by  its  size  and  substantial  resources,  it  put 
up  a  prolonged  and  ruthless  fight  for  any  market  it  wanted.  It  had 
done  so  in  personal  computers  and  laser  printers,  with  well-engi- 
neered products  and  perseverance.  It  was  the  tortoise  in  the  races 
it  entered,  in  for  the  long  haul. 

To  push  its  first  video-game  system,  NEC  formed  a  home-enter- 
tainment group  and  released  PC  Engine  in  Japan  in  October  1987. 
A  more  expensive  system  (at  $200)  was  released  to  the  American 
market  in  1989.  The  TirboGrafx-16  was  an  expandable  system, 
with  16  bits  of  power. 

For  a  long  time,  to  the  kids  who  comprised  the  primary  video- 
game players,  bits  and  bytes  were  only  slightly  more  relevant  than 
Latin.  Then  NEC  fired  the  first  shot  in  the  battle  of  the  bits.  The 
TbrboGrafx-16  had  twice  as  many  bits  as  Nintendo,  and  kids 


SONIC    BOOM 


learned  that  more  bits  meant  more  realistic  games,  with  more  and 
brighter  colors  and  awesome  sound  effects — arcade-quality  games. 

The  essential  computing  chip  that  runs  computers  and  video 
games,  the  microprocessor,  functions  like  a  traffic  cop  at  a  busy 
intersection.  The  processor  directs  a  steady  stream  of  information 
(from  other  integrated  circuits  and  programs)  at  the  busiest  inter- 
section in  town  to  wherever  it  needs  to  go  in  order  to  make  the 
computer  and  program  function.  The  net  result  of  all  the  high- 
speed traffic  is,  say,  a  high  jump  by  Super  Mario  to  the  accompani- 
ment of  an  electronic  cymbal  crash. 

An  8-bit  processor,  such  as  the  one  at  the  heart  of  the  NES  and 
Famicom,  can  work  with  64K  (that  is,  64,000)  strings  of  informa- 
tion that  are  eight  characters  (or  bits)  long.  Each  bit  is  actually  an 
electric  impulse  that  is  either  turned  on  or  off.  A  one  means  on;  a 
zero  means  off.  Each  message  is  unique,  depending  on  the  specific 
configuration  of  the  eight  ones  and  zeros. 

A  16-bit  processor  reads  messages  made  of  sixteen  bits — that  is, 
sixteen  ones  and  zeros.  It  can,  therefore,  "understand"  and  process 
250  times  more  messages — 16  million.  It  means,  simply,  that  a  16- 
bit  machine  can  do  a  lot  more,  and  do  it  a  lot  faster,  than  an  8-bit 
machine. 

When  NEC  launched  the  TurboGrafx-16,  video-game  players 
were  impressed  with  the  meatier,  more  textured  feeling  of  the  first 
games.  There  was,  however,  a  flaw  in  the  more-is-better  logic  be- 
hind the  new  technology,  and  NEC  learned  the  lesson  the  hard 
way.  While  its  powerful  system  played  games  with  better  graphics 
and  sound,  NEC  hadn't  improved  its  video  games.  They  were  not 
as  much  fun.  In  the  end,  NEC's  16  bits  could  not  compete  with 
"Tetris,"  "Super  Mario  Bros.,"  "The  Legend  of  Zelda,"  and  hun- 
dreds of  other  great  Nintendo  games.  In  spite  of  its  clout,  less  than 
1  million  TUrboGrafx  units  were  sold.  For  all  their  technical  prow- 
ess, NEC's  machines  could  be  no  better  than  the  software  that  ran 
on  them,  and  NEC  had  limited  access  to  good  games.  "Bonk's 
Adventure,"  in  which  a  bantam-weight  caveman  bounces  his  way 
through  a  Paleolithic  paradise,  was  a  good  game  that  accounted  for 
many  TurboGrafx  sales,  but  most  of  the  credit-card-size  cartridges 
NEC  released  were  unexceptional.  Since  it  had  no  experience 
making  games,  it  depended  on  third-party  developers  to  build  a 


GAME    OVER 


library.  But  the  best  entertainment-software  companies  were  too 
busy  making  Nintendo  games  to  bother  making  ones  for 
TurboGrafx. 

Still,  NEC  probably  could  have  gotten  the  support  of  some  soft- 
ware companies  if  techies  in  the  industry  had  been  truly  excited  by 
the  TurboGrafx- 16  technology.  Some  companies  specialized  in 
software  for  the  state-of-the-art  technology  regardless  of  its  lim- 
ited market.  What  designers  and  programmers  found,  however, 
was  that  TurboGrafx  was  only  incrementally  better.  NEC  adver- 
tised its  system  as  a  16-bit  machine,  but  actually  it  had  an  8-bit 
processor  that  was  souped  up  to  emulate  16  bits.  "It's  going  to  run 
out  of  gas,"  said  one  software  engineer.  'The  technology  has  se- 
vere limitations.  It  is  not  a  true  16-bit  system."  Since  the  designers 
weren't  excited  about  the  machine  and  the  installed  base  was  so 
low,  for  the  most  part  NEC  could  get  only  bottom-of-the-barrel 
software.  TurboGrafx  turned  out  to  be  no  threat  and  Yamauchi 
relaxed. 

Sega  never  was  a  threat  as  far  as  Yamauchi  was  concerned.  The 
$700  million  Japanese  company — founded,  curiously  enough,  by 
an  American — had  a  reasonably  successful  history  in  the  video- 
arcade  business  in  Japan  and  the  United  States,  but  it  seemed  too 
small  and  too  specialized  to  make  inroads  into  Nintendo's  vast 
consumer  business.  Sega  had  released  the  Master  System  as  a 
competitor  to  the  Famicom  and  NES  but  never  gained  more  than 
5  percent  of  the  market.  Although  it,  unlike  NEC,  was  an  able 
software  company,  it  never  seemed  to  be  playing  in  the  same 
league  as  Nintendo. 

Yamauchi  underestimated  Sega,  whose  executives  understood 
the  importance  of  software  to  drive  hardware  sales.  This  philoso- 
phy was  built  into  the  company's  16-bit  contender,  the  Genesis, 
which  it  launched  in  1989  in  Japan  (1990  in  the  United  States). 
Genesis  was  the  first  dedicated  video-game  system  powered  by  a 
true  16-bit  processor;  it  had  the  same  68000  processor  that  ran  the 
Macintosh  computer.  Sega  had  simply  taken  the  design  of  its  16- 
bit  arcade  machines  and  adapted  it  for  Genesis.  It  could  therefore 
boast  not  only  such  16-bit  features  as  high-definition  graphics  and 
animation,  a  full  spectrum  of  colors  (more  than  500),  two  inde- 
pendently scrolling  backgrounds  that  created  impressive  depth-of- 


SONIC    BOOM  353 

field,  the  illusion  of  three  dimensions,  and  near  CD-quality  sound, 
but  also  a  proven  software  catalogue:  Sega's  arcade  hits.  As  a 
peripheral  to  the  Genesis,  Sega  also  released  a  unit  called  the 
Power  Base  Converter.  For  $35  it  allowed  Master  System  games  to 
be  played  on  the  Genesis. 

Sega  got  a  reputable  distributor  in  America  (Tonka),  spent 
$10  million  in  advertising,  and  set  out  to  fell  Goliath.  The  machine, 
priced  originally  at  $199,  was  launched  on  the  strength  of  software 
titles  that  kids  who  hung  out  in  arcades  already  knew.  One  was 
"Altered  Beast,"  a  brutal  game  in  which  a  hero  metamorphoses 
into  a  werewolf,  weredragon,  and  werebear,  gaining  the  powers  of 
the  revolting  creatures  he  kills.  Sega  attacked  Nintendo  head-on. 
"Sega  Genesis  does  what  Nintendon't,"  its  slogan  read. 

Competition  was  exactly  what  Nintendo  and  the  video-game  in- 
dustry needed,  though  Nintendo  was  unlikely  to  acknowledge  this. 
The  American  automobile  industry  had  floundered  in  the  absence 
of  competition.  In  the  1920s  there  were  181  American  automobile 
companies.  As  the  Big  Three  gobbled  them  up,  replacing  what  had 
been  a  vibrant  industry  with  a  small  club,  competition  declined, 
and  with  it  went  the  American  auto  industry.  In  Japan  there  re- 
mained nine  strong  automobile  manufacturers  in  a  cutthroat,  com- 
petitive environment.  Competition  kept  innovation  moving  at  a 
fast  clip;  there  was  no  time  to  waste,  no  room  for  stagnation. 
Nintendo,  however,  stuck  with  its  haughty  above-the-fray  posture. 
"We  listen  to  our  players,"  Bill  White  told  the  press.  "They  tell  us 
they  are  extremely  happy  with  the  existing  system  and  are  totally 
involved  with  the  games.  We  haven't  maxed  out  our  8-bit  system 
yet."  This  attitude  left  the  company  in  the  dust  of  the  16-bit  war. 

At  first  the  market  reinforced  Nintendo's  confidence.  During 
the  first  two  years  Genesis  was  on  the  market,  Nintendo  sold  18 
million  8-bit  systems  in  America.  Sega's  arguments  for  16  bits 
weren't  supportable.  The  first  Genesis  games,  even  the  knock-offs 
of  the  arcade  hits,  were  not  as  much  fun  as  the  best  Nintendo 
games.  In  many  cases,  the  Sega  programmers  were  so  intent  on 
exploiting  the  possibilities  of  detailed  graphics  and  exciting  sound 
that  they  forgot  what  made  great  video  games. 

The  company  spent  multimillions  to  sign  Michael  Jackson,  him- 


354  GAME    OVER 


self  a  video-game  fanatic,  to  a  contract  to  codevelop  "Moon- 
walker,"  a  game  based  on  Jackson's  10-million-selling  album,  Bad. 
Jackson  worked  with  Sega's  Al  Nilsen,  who  ran  the  marketing  of 
the  American  home  video-game  operation,  to  come  up  with  a  story 
line  for  a  game.  Sega  programmers  created  it,  and  Jackson  helped 
fine-tune  its  features.  The  plot  loosely  re-created  the  Moonwalker 
video,  in  which  Jackson  did  his  trademark  fancy  dancing  and, 
meanwhile,  saved  some  of  his  young  friends.  At  the  end,  he  turned 
into  a  menacing  robot. 

The  final  product  had  remarkable  visual  and  audio  touches. 
Jackson's  face  and  dance  moves  were  digitized;  there  were  elec- 
tronic re-creations  of  half  a  dozen  of  the  songs  from  the  album  and 
Jackson's  digitized  voice — incessant  whoops,  yeahs,  and  oooo's. 
When  he  danced  on  piano  keys,  the  piano  "played." 

When  the  game  was  released,  Sega  sold  a  sizable  number  of 
Genesis  systems  because  of  the  Jackson  name  and  its  state-of-the- 
art  appearance.  However,  in  the  end,  "Moonwalker"  had  a  fatal 
flaw:  it  was  repetitive  and  boring.  Flash  was  no  substitute  for  sub- 
stance. 

The  Genesis  continued  to  flounder  through  its  first  couple  of 
years  on  the  market,  although  Sega  showed  Sisyphean  resolve.  It 
sold  machines  to  anyone  it  could,  mostly  to  older  boys  who  were 
diehard  video-game  buffs.  They  were  the  kids  who  insisted  on 
having  (and  could  afford  to  have)  both  the  NES  and  the  cutting- 
edge  machine.  Sega  released  some  better  games  and  sold  more 
systems — a  hundred  thousand  here,  a  hundred  thousand  there. 
The  sawier  kids  extolled  the  virtues  of  16  bits  and  scoffed  at  the 
dweebs  still  playing  Nintendo.  The  result  was  that  Sega  began  to 
embody  cool.  NOA  commissioned  a  study  that  confirmed  it: 
younger  kids  and  girls  liked  Nintendo,  but  the  trendsetters  in  the 
video-game  world,  young  teenage  boys,  were  talking  Genesis. 

Sega  built  on  the  growing  buzz  by  learning  from  the  Michael 
Jackson  experience  and  making  licensing  deals  that  produced 
high-profile  games  that  were  also  challenging  and  fun.  Working 
with  sports  celebrities  such  as  Arnold  Palmer  and  Tommy  Lasorda, 
the  Sega  designers  figured  out  ways  to  take  advantage  of  the  Gene- 
sis's 16  bits  for  "deeper"— more  complex — games.  The  resulting 
games  were  superior  to  the  ones  on  the  NES.  Joe  Montana  signed 


SONIC    BOOM 


on  for  a  reported  $8  million,  and  Sega  released  a  great  football 
game.  Its  sequel,  "Joe  Montana  2:  Sports  Talk  Football,"  had  run- 
ning commentary  by  a  semirealistic-sounding  announcer  who 
screams,  "Montana  drops  back.  He's  got  a  man  open.  .  .  .  He 
passes.  It's — no  good.  Incomplete. "  Behind  him  is  the  sound  of  a 
wall  of  cheering  fans. 

Sports  games  and  arcade  knockoffs  remained  Sega's  strong 
suits.  Yet  by  and  large,  its  designers  came  up  with  great-Zoofcrng 
games — better  than  any  that  had  been  seen  to  date — but  not  great- 
playing  games.  Examples  were  those  that  came  out  of  Sega's  licens- 
ing agreement  with  Disney,  such  as  "Fantasia"  and  "Castle  of 
Illusion,"  both  featuring  Mickey  Mouse.  "Fantasia"  had  rousing 
classical  music  from  the  film  and  great-looking  Sorcerer's  Appren- 
tice brooms  that  danced.  In  "Castle  of  Illusion,"  the  expressiveness 
in  Mickey's  face  set  a  new  standard  for  video  games.  However, 
they  weren't  that  much  fun  to  play.  Sega  was  missing  what  Hiroshi 
Yamauchi  had  long  before  acknowledged  to  be  the  most  important 
single  asset  of  a  video-game  company:  "one  true  genius."  It 
needed  a  Sigeru  Miyamoto  or  an  Alexey  Pajitnov. 

While  Sega  hoped  for  a  "genius"  to  emerge,  it  got  an  enormous 
boost  from  its  first  third-party  licensee.  Although  its  base  of  1  mil- 
lion systems  paled  in  comparison  to  Nintendo's,  THp  Hawkins  of 
Electronic  Arts  calculated  that  Sega  had  created  a  promising  mar- 
ket, one  for  which  the  price  of  admission  was  far  less  than  Nin- 
tendo's. There  was  little  competition — the  software  companies  in 
the  video-game  business  were  all  after  Nintendo's  70  million  play- 
ers— and  the  million  people  who  had  invested  in  the  Genesis  were 
dying  for  good  games;  indeed,  they  were  demanding  more  games 
than  were  owners  of  personal  computers. 

Hawkins  met  with  the  Sega  chiefs,  who  planned  to  initiate  a 
licensing  agreement  with  similar  restrictions  and  fees  as  Nin- 
tendo's. Hawkins  refused — Sega  wasn't  big  enough  to  throw  that 
kind  of  weight  around.  EA  engineers  had  succeeded  in  reverse- 
engineering  the  Genesis  without  using  any  confidential  informa- 
tion, and  Hawkins  maintained  that  he  would  release  games  for 
Sega  with  or  without  a  license. 

Determined  to  maintain  a  stake  in  the  Genesis  software  market, 
Sega  said  it  would  sue.  To  avoid  "a  pissing  contest,"  Hawkins  says, 


356  GAME    OVER 


particularly  since  both  companies  had  a  common  goal — to  advance 
the  Genesis  marketplace — he  agreed  to  enter  into  a  licensing 
agreement  under  terms  he  found  acceptable,  far  less  restrictive 
(and  costing  less)  than  those  for  a  Nintendo  licensee. 

EA's  stock  crept  up  as  it  shipped  its  first  Genesis  games  in  1990. 
The  next  year  it  shipped  nine  more,  four  of  which  shot  onto  the  list 
of  the  top-ten  bestsellers.  Having  hedged  his  bets — he  had  also 
become  a  Nintendo  licensee — Hawkins  thrived  in  the  Genesis 
market  and  made  a  killing.  A  quarter  of  EA's  sales  in  1990  were 
from  Genesis  games. 

The  Genesis's  16  bits  meant  that  EA  could  convert  some  of  its 
floppy-disk  bestsellers  to  the  Sega  system.  EA  released  "John 
Madden  Football,"  which  went  up  against  Sega's  "Joe  Montana 
Football,"  and  an  impressive  list  of  other  games,  from  an  award- 
winning  martial-arts  game  called  "Budokan"  to  a  gory  version  of 
Will  Harvey's  "Immortal,"  in  which  16-bit  graphics  allowed  some 
particularly  repulsive  blood  and  guts. 

Other  software  companies  signed  on  (reportedly  with  less  liberal 
licensing  deals  than  EA's  but  still  preferable  to  the  Nintendo 
straitjacket),  though  many  Nintendo  licensees  feared  retribution 
by  Nintendo.  EA  took  the  risk,  gambling  (successfully,  it  seemed) 
on  the  Sega  technology,  and  some  other  software  companies  went 
to  Sega  because  they  had  nothing  to  lose.  Tengen,  for  one,  out  of 
the  Nintendo  business  pending  its  litigation,  jumped  in  with  a  se- 
ries of  Genesis  games  (licensed  this  time;  it  could  afford  no  new 
lawsuits). 

With  each  new  convert  Sega  was  more  and  more  legitimized. 
Fueled  by  games  released  by  licensees,  the  list  of  Genesis  software 
grew — good  software,  to  be  sure,  but  no  "Super  Mario  Bros." 
Sales  of  the  Genesis  hardware  also  grew,  so  that  by  mid  1991,  there 
were  well  over  1  million  in  use.  By  then  NOA  had  sold  31.7  million 
units  in  the  United  States,  but  Sega  had  established  itself  as  the 
market  leader  of  the  next  generation.  Mighty  Nintendo,  which  had 
announced  that  it  would  enter  the  16-bit  market  only  when  it  was 
good  and  ready,  was  in  trouble. 

Hiroshi  Yamauchi  had  had  a  16-bit  system  in  the  works  for 
years.  Masayuki  Uemura,  in  charge  of  the  top-secret  project,  had 


SONIC    BOOM  357 


been  experimenting  with  a  follow-up  to  the  Famicom-NES  since 
the  late  1980s.  Yamauchi  left  the  technical  specifications  to  the 
engineers,  but  he  did  insist  that  his  company  must  be  poised  to 
jump  into  the  16-bit  market  by  1990.  There  was  no  perceived  ur- 
gency, however;  the  NES  was  flying  so  high  that  Nintendo  felt  no 
pressure  to  rush. 

One  issue  that  Yamauchi  made  the  engineers  consider  was  the 
compatibility  of  a  new  system  with  the  hundreds  of  millions  of 
Nintendo  games  in  circulation.  New-generation  hardware  was  al- 
ways resisted  if  it  made  old  software  obsolete.  Yamauchi  correctly 
anticipated  a  backlash  against  Nintendo,  particularly  from  parents, 
if  its  new  machine  couldn't  play  the  libraries  of  games  collected  for 
its  8-bit  technology. 

Uemura  accomplished  many  feats  in  his  design  of  the  new  Super 
Family  Computer  (dubbed  the  Super  NES,  or  SNES,  in  the  West), 
but  one  of  them  was  not  compatibility.  The  cost  would  have  been 
too  high — at  least  $75  would  have  been  added  to  the  price  of  each 
unit.  Uemura  found  that  a  major  leap  in  technology  was,  almost  by 
definition,  not  compatible  with  old  technology. 

Arakawa  and  Yamauchi  discussed  the  problem  and  decided  they 
could  deal  with  backlash  generated  by  the  compatibility  issue.  Af- 
ter all,  consumers  were  buying  CD  players  even  though  the  new 
technology  wasn't  compatible  with  their  libraries  of  tapes  and 
records.  Arakawa  insisted  that  video-game  customers  would  do  the 
same. 

Uemura  had  better  luck  with  other  features  of  the  new  system. 
Around  the  central  processor  were  special  chips  for  sound  and 
extremely  high-resolution  graphics  and  video.  The  new  SNES 
could  generate  many  more  colors  than  the  Genesis's  512 — 32,000 
in  fact,  many  of  them  barely  distinguishable  (especially  on  most 
televisions).  This  would  be  important,  however,  when  video  games 
began  to  incorporate  real  film  footage.  There  was  also  a  math 
coprocessor  that  allowed  the  hardware  to  do  some  of  the  work 
normally  done  by  software  and  would  make  it  easier  to  create 
games  for  the  new  system.  Like  the  Genesis,  the  SNES  could  dis- 
play several  layers  of  backgrounds  so  that  it  could  create  the  illu- 
sion of  three  dimensions.  It  also  had  the  capability  to  generate 
(and  move)  large  objects  on  the  screen,  and  many  more  things 


GAME    OVER 


could  happen  simultaneously  in  a  game.  It  also  had  one  other  key 
feature:  an  improved  version  of  the  patented  Nintendo  security 
chip. 

The  Japanese  version  of  the  Super  system  was  made  to  look 
somewhat  like  the  original  Famicom,  but  Arakawa  had  a  different 
version  designed  for  the  United  States.  Don  James  and  product 
designer  Lance  Barr  sought  a  balance  so  that  it  would  be  sleek 
enough — Arakawa  said  it  had  to  fit  in  next  to  a  VCR — and  accessi- 
ble. The  Genesis  was  housed  in  a  black  box  with  rounded  edges. 
James  and  Barr  came  up  with  a  far  more  elegant  gray  with  right 
angles.  Their  colors  represented  the  images  of  the  respective  ma- 
chines. The  Genesis,  in  black,  was  the  outsider,  the  heavy  metal  of 
video-game  machines.  The  SNES,  sleekly  styled  in  gray,  was  com- 
mercial and  pop. 

As  "Super  Mario"  had  sold  the  NES  and  "Tetris"  had  sold 
Game  Boy,  Yamauchi  and  Arakawa  had  to  decide  what  game 
would  be  used  to  spark  sales  of  the  SNES.  In  the  end  there  was  no 
real  debate.  "Super  Mario  Bros.  3"  had  been  the  most  successful 
video  game  in  history.  What  would  convince  more  buyers  to  cough 
up  $200  for  a  new  system  than  "Super  Mario  Bros.  4"?  Sigeru 
Miyamoto  was  assigned  to  create  it. 

After  the  exhausting  months  of  completing  "SMB3," 
Miyamoto's  team  had  taken  fifteen  months  off  to  do  nothing  but 
conduct  technology  experiments  to  explore  the  outer  reaches  of 
the  SNES.  He  and  his  thirty-person  team  were  still  scratching  the 
surface  of  the  machine's  potentials  when  he  was  asked  to  press 
forward  on  a  game  that  would  show  off  the  16-bit  bells  and  whistles 
and  improve  on  "Super  Mario  Bros.  3."  It  was  an  onerous  assign- 
ment, made  more  difficult  by  the  undisguised  pressure  to  succeed. 
"Super  Mario  Bros.  4,"  renamed  "Super  Mario  World,"  was  sup- 
posed to  be  so  great  that  there  would  be  no  question  when  it  came 
to  choosing  a  16-bit  platform. 

"There's  no  emotion  in  a  game,"  Tony  Harman  says.  "It's  all 
ones  and  zeros;  we're  creating  illusions.  The  magic  comes  from 
inspiration.  .  .  .  The  best  of  the  rest  of  the  efforts  can  be  no 
better  than  second  best." 

Miyamoto  set  to  work  to  create  sleight  of  hand  beyond  any  he 


SONIC    BOOM 


had  managed  before,  and  he  did  manage  some  great  innovations. 
Still,  when  it  was  completed,  "Super  Mario  World"  was  disappoint- 
ingly similar  to  its  antecedents.  Mario  had  new  skills,  and  the  game 
offered  some  fascinating  innovations.  There  were  opportunities 
throughout  it  for  players  to  hone  new  skills — first  in  nonlethal, 
then  in  semilethal,  and  finally  in  dangerous  situations.  To  en- 
courage players  to  enjoy  Mario's  ability  to  fly,  for  example, 
Miyamoto  designed  a  world  with  no  enemies  where  players  could 
practice  in  a  sky  filled  with  coins.  Every  hundred  coins  were  good 
for  a  free  life,  so  there  was  plenty  of  incentive  to  wallow  there,  take 
a  running  start,  pump  the  A  button,  and  take  off. 

Miyamoto  also  made  the  game  nonlinear — a  player  could  return 
to  different  worlds  at  any  time — and  there  were  other  touches  that 
seemed  as  if  they  would  lead  to  future  developments.  However, 
"Super  Mario  World"  wasn't  a  sufficient  departure  from  its  prede- 
cessor. "People  don't  know  how  to  write  16-bit  software  yet,"  Greg 
Fischbach  said  at  the  time.  "It  will  be  revolutionary,  but  it  will  take 
some  time  to  understand."  There  would  be  more  lifelike  and  emo- 
tion-filled games  because  of  16-bit  processors.  Miyamoto  says, 
"Wait,  and  I  will  learn  more  about  the  limits  of  this  machine."  In 
the  meantime,  "Super  Mario  World"  was  a  disappointment,  partic- 
ularly when  it  was  compared  to  a  new  game  that  was  released  for 
Sega's  16-bit  system. 

An  independent  development  team  contracted  to  Sega  came  up 
with  "Sonic  the  Hedgehog,"  a  game  featuring  a  cute  creature  who 
impatiently  tapped  his  foot — er,  paw — when  the  player  took  too 
long  to  act.  Impatience  was  Sonic's  essential  characteristic:  he  had 
places  to  go — and  quickly.  He  zipped  along,  collecting  brass  rings 
when  he  could  find  them,  before  rolling  up  into  a  ball  and  flying 
down  slides  with  loops  and  underground  tunnels.  For  the  player,  it 
was  like  a  roller-coaster  ride.  Sega  pronounced  "Sonic"  the  fastest 
video  game  in  history.  It  had  finally  found  its  Mario. 

"Sonic"  was  not  a  great  game,  but  it  was  novel,  the  character  was 
likable,  and  it  had  good  graphics  and  a  bouncy  musical  score.  Like 
so  many  games,  it  was  plagued  by  repetition,  but  with  not  much 
competition  at  that  time  from  Nintendo  or  any  licensees,  "Sonic" 
took  off  and  sold  hundreds  of  thousands  of  Genesis  systems.  Best 


3BO  GAME    OVER 


of  all  for  Sega,  "Sonic"  was  there  to  mock  Nintendo's  launch  of  its 
Super  system. 

In  spite  of  Sega's  growth,  Nintendo  believed  it  would  release  its 
Super  systems  in  Japan  and  America  and  easily  do  away  with  the 
Genesis,  "Sonic"  and  all.  Sega  may  have  stockpiled  cash  ($400 
million)  and  earned  a  cooler-than-Mario  reputation,  but  this  was 
only  because  Nintendo  hadn't  yet  entered  the  field.  Finally  it  an- 
nounced plans  to  release  its  16-bit  machine.  The  announcement 
was,  in  large  part,  a  warning  to  would-be  Genesis  buyers  not  to 
make  a  mistake  they  would  regret. 

The  actual  launch  began  a  year  later  in  Japan,  where  anticipa- 
tion of  the  new  system  was  rabid.  In  late  October  1990,  there  were 
rumors  that  the  Super  Family  Computer  was  coming,  and  stores 
were  inundated  with  calls.  As  soon  as  Hiroshi  Imanishi  informed 
his  sales  team  that  a  shipping  date  was  forthcoming,  some  stores 
began  taking  orders.  The  Hankyu  department  store  in  Osaka  an- 
nounced that  it  would  accept  "reservations"  beginning  on  Novem- 
ber 3.  A  week  later  it  had  accepted  more  than  it  would  be  able  to 
fill  and  stopped  accepting  orders.  Other  stores  announced  lotter- 
ies, and  some  had  customers  pay  the  32,000  yen  (about  $200)  for 
the  system  plus  "Super  Mario  World"  in  advance. 

Yamauchi  and  Imanishi  jointly  directed  Operation  Midnight 
Shipping,  which  commenced  in  the  wee  hours  of  November  20, 
1990.  Kenji  Takahashi,  in  his  recent  book  on  Nintendo  (Light  and 
Shadow  of  an  Enterprise  That  Surpassed  Matsushita  and  Sony),  de- 
scribed the  secret  transport:  "On  a  night  in  the  fall  .  .  .  with  the 
wind  blowing  through  the  Kyoto  Basin,  adding  a  considerable  chill, 
an  unusually  large  number  of  over-sized  ten-ton  trucks  congre- 
gated at  a  warehouse  in  the  city.  Workmen  quietly  loaded  the 
trucks,  which  then  disappeared,  one  by  one,  into  the  darkness  of 
the  sleeping  town  and  onto  the  state  highway.  .  .  . 

"At  the  same  time,  other  trucks  departed  from  warehouses 
throughout  Japan.  The  last  truck  left  the  last  warehouse  as  dawn 
was  breaking." 

All  the  secrecy  was  to  head  off  thievery,  Hiroshi  Yamauchi  sub- 
sequently revealed.  A  yakuza  ring  was  rumored  to  be